Microsoft’s revenue rose 12% year over year in the previous quarter, with the company’s cloud business playing a central role in driving this double-digit growth. It recorded is microsoft a good stock to buy a 19% year-over-year increase in revenue from the Intelligent Cloud business. Microsoft’s Azure cloud services got a boost of 13 percentage points from the fast-growing demand for AI applications that the company has been offering on its platform. Microsoft stock came under more pressure following the release of results for its fiscal 2025’s second quarter (ended Dec. 31, 2024) on Jan. 29. Though the company beat Wall Street’s earnings and revenue expectations easily, its revenue guidance for the current quarter was lower than what analysts were expecting. Some analysts believe that Microsoft’s strong position in the PC market, its dominance in the operating system industry and its general continued innovation in AI make it a compelling long-term investment for at least the next couple of years.
Stock Performance and Valuation
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- If you like a stock that only has a #3 (Hold) rank, it should also have Scores of A or B to guarantee as much upside potential as possible.
- Analysts laud Microsoft’s robust free cash flow, which currently hovers at about $86 billion annually.
- With the stock already trading near record highs, is it a good time to buy now?
- When breaking down the numbers further, its cloud platform Azure is projected to grow at about 34–35% in constant currency.
- Analysts are particularly bullish on Microsoft’s cloud computing segment, with some projecting significant revenue growth over the next few years, thanks in large part to the company’s role in artificial intelligence (AI).
Certain Zacks Rank stocks for which no month-end price was available, pricing information was not collected, or for certain other reasons have been excluded from these return calculations. Zacks may license the Zacks Mutual Fund rating provided herein to third parties, including but not limited to the issuer. While retail investors often automatically classify Microsoft as a “blue-chip defensive holding,” institutional-grade analysis demands scrutinizing quarterly revenue growth rates, margin expansion trends, and emerging competitive threats. Pocket Option’s technical analysis suite offers 15+ proprietary indicators specifically calibrated for tech sector volatility patterns, enhancing fundamental research when evaluating if MSFT stock merits portfolio inclusion. The company’s current price-to-earnings (P/E) ratio stands at 35, which exceeds the market average values. Despite being expensive to some investors, the earnings growth demonstrates that the valuation is justified.
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Opinions expressed herein are those of the authors and not necessarily those of Analytics Insight, or any of its affiliates, officers or directors. All of the above tell us why analysts are expecting Microsoft’s earnings growth to step on the gas following an 11% jump in its bottom line in fiscal 2025 to $13.15 per share. In fact, the size of its RPO is higher than the $254 billion revenue that the company has generated in the past 12 months. It won’t be surprising to see Microsoft’s RPO growth accelerating in the future. The cloud AI services market is expected to clock almost 40% annual growth through 2030, according to Grand View Research. This also explains why Microsoft’s earnings grew at a slower pace than its revenue last quarter.
However, the good part is that Microsoft is expecting its AI capacity to match demand by the end of the current fiscal year, owing to the substantial increase in its capital expenses. The company points out that it witnessed a whopping 157% jump in AI services revenue last quarter, exceeding its expectations. However, the tech giant faced constraints as “demand continued to be higher than our available capacity.” As a result, the 31% jump in Azure revenue fell slightly below analysts’ expectations.
Microsoft’s Azure cloud platform generates $52.7 billion in annual revenue (Q run-rate) and delivers 42% of the company’s operating profit while expanding at 27% year-over-year – 8.4 percentage points faster than the overall cloud infrastructure market. Azure has captured 23% market share, narrowing the gap with AWS (32%) from 12 points to 9 points over 24 months while maintaining a commanding 12-point lead over Google Cloud (11%). Executives estimated capital expenditures would total $30 billion in the quarter being reported Wednesday. Bank of America analysts wrote in a note last week that an increase to Microsoft’s capex guidance could give the stock a post-earnings boost. Analysts expect Microsoft to report another quarter of strong revenue and earnings growth. Microsoft’s Azure cloud computing platform, where the company recognizes revenue from hosting AI workloads, is expected to grow 38% year-over-year.
Should Investors Buy it Now?
A stock with a #4 (Sell) or #5 (Strong Sell) rating, for instance, even one with Scores of A and B, will still have a declining earnings forecast, and a greater chance its share price will fall too. It started the year closer to $420 and has appreciated over 18% year-to-date. The bulk of these gains were in the last couple of months, particularly following robust earnings and increasing enthusiasm surrounding its AI offerings. Not surprisingly, Microsoft is going to ramp up its infrastructure spending as it strives to fulfill these contracts in the future, which should ideally lead to an acceleration in growth going forward.
Premium pricing for a premium company
Microsoft struck 12 record highs in June alone, demonstrating how much investor confidence has blossomed. As commercial bookings refer to the new contracts signed by Microsoft with large customers, the impressive jump in this metric bodes well for the company’s future. Microsoft’s robust future revenue pipeline is also evident from its remaining performance obligations (RPO) of $298 billion in the previous quarter. This metric, which refers to the total value of the company’s contracts that will be fulfilled in the future and recognized as revenue, increased by 34% from the year-ago period. Options prices suggest traders expect Microsoft shares to move about 4.2% in either direction by the end of the week. A move of that size off of Tuesday’s close would put shares at about $565, an all-time closing high, or about $519, erasing their gains from the last week.
Stocks Mentioned
Given how much attention artificial intelligence (AI) has been getting and how it’s supposed to boost cloud platforms like Azure, it makes sense that investors put a microscope on that part of Microsoft’s business. But for me, the company hasn’t shown enough to suggest that it’s a big innovator these days and that it can keep up with other businesses. While it’s undoubtedly one of the biggest names in tech, that doesn’t mean it’ll be one of the best growth stocks or among the largest benefactors from the growth opportunities related to AI. More recently, the company is diving headfirst into artificial intelligence (AI).
- Unsurprisingly, the Intelligent Cloud segment has been the firm’s main growth driver over the past several years, as demonstrated in the image below.
- Furthermore, the average MSFT price target of $558.71 per share implies 9% upside potential.
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- The dividend increase made Microsoft stocks enticing for investors planning to hold their shares for the long term.
When breaking down the numbers further, its cloud platform Azure is projected to grow at about 34–35% in constant currency. This is slightly more than the 33% growth seen in the previous quarter, when AI services accounted for a large portion of the increase. Unsurprisingly, the Intelligent Cloud segment has been the firm’s main growth driver over the past several years, as demonstrated in the image below. The company’s five-year average rolling return of 23.7% versus the S&P 500’s 14.2% validates this premium through actual performance.
Options Strategies for Enhanced Returns
For Microsoft to continue surging in value, I think it needs to show investors that Copilot is the real deal that can be a huge growth catalyst for its business. When analyzing if is MSFT a good stock to buy, the company’s AAA-rated balance sheet (one of only two US corporations with this rating) demands attention. Microsoft maintains $127.4 billion in liquid assets against $78.3 billion in long-term debt, yielding a 1.63x coverage ratio – 2.7x higher than the tech sector average.
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