Options traders are pricing a roughly $190 billion swing in Microsoft's market value around its fourth-quarter results, wider than the company's recent earnings history implies. The premiums point to one question: whether billions of dollars of AI spending are beginning to pay off.
Options on Microsoft imply a move of about 6.6% in either direction after the company reports fourth-quarter results on Wednesday, a roughly $190 billion swing in market value. Over the last 12 earnings cycles, Microsoft has averaged a 4.8% implied move and a 4.4% actual move, Option Research & Technology Services (ORATS) data showed.
That significantly higher pricing suggests investors view Microsoft — one of the hyperscalers whose massive AI capital spending sits at the heart of this year's AI rally and the broader bull market — as central to the AI earnings story. But with the AI trade now faltering, investors who flocked to technology stocks are growing wary of ever-rising costs.
At their current trajectory, the hyperscalers are expected to spend more combined on capital expenditures than they generate in free cash flow by 2027, Reuters reported last week.
Microsoft's shares trail the S&P 500 this year
Microsoft's shares have fallen 18.7% this year, while the S&P 500 is up 8.52%. Its fiscal third-quarter capital expenditure rose 49% year-over-year to $31.9 billion, down from the previous quarter's $37.5 billion.
Investors will be watching whether those AI investments are translating into stronger enterprise adoption. Beyond growth at the Azure cloud computing platform, they are also eyeing whether customers are embracing Microsoft's AI tools within its ecosystem or turning to outside providers.
A $10.4 million bet on higher Microsoft shares
Still, many investors remain bullish. One trader spent about $10.4 million on Monday to buy 20,000 call options tied to Microsoft's stock ahead of earnings, betting the shares will rise above $450 by August, according to Chris Murphy, co-head of derivatives strategy at Susquehanna. Seth Hickle, chief investment officer at Mindset Wealth Management, said: "The market is looking for results."
Investors also made bullish bets on the software sector, buying 100,000 call options on the iShares Expanded Tech-Software Sector exchange-traded fund ahead of Microsoft's earnings and the Federal Reserve's meeting, Murphy said.
Meta options imply a 7.8% move
Meta options imply a 7.8% move after it reports results on Wednesday, slightly above the 7.3% average implied move over the last 12 earnings cycles, according to ORATS data. Historically, Meta's stock tends to move slightly more than options markets anticipate, averaging 7.9%.
Matt Amberson, founder of ORATS, said earnings-related volatility has increased over the past year, with particularly large reactions in the last three quarters.
Source: Reuters
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