Key Takeaways
As global markets navigate a storm of economic headwinds, Microsoft continues to chart its path, fueled by strategic bets on artificial intelligence (AI), a resilient cloud business, and unwavering investor confidence.
With Wall Street watching closely and competitors scrambling to keep pace, Microsoft’s latest performance marks not just a strong quarter, but a signal that its long-term vision may turn into reality faster than many anticipated.
Microsoft reported better-than-expected quarterly results, driven by its Azure cloud business, and issued strong guidance.
The company posted earnings per share of $3.46, exceeding the expected $3.22, and revenue of $70.07 billion, above the anticipated $68.42 billion.
Looking ahead, Microsoft forecasts revenue between $73.15 billion and $74.25 billion, above the consensus estimate of $72.26 billion. Azure growth is expected to range from 34% to 35% at constant currency, outpacing the anticipated 31.5%.
While the company noted that capital expenditures would grow in fiscal 2025, the pace will be slower compared to fiscal 2024. The implied operating margin of 43.4% came in slightly below the consensus of 43.5%.
For the fiscal third quarter, which ended on March 31, revenue grew 13% year-over-year, and net income rose 18% to $25.8 billion, or $2.94 per share, compared to $21.9 billion, or $2.94 per share, the previous year.
Despite concerns over the impact of President Trump’s early April tariffs on tech companies, Microsoft’s strong forecast offered reassurance to investors.
CEO Satya Nadella highlighted that Microsoft plans to invest $80 billion in AI-focused data center construction during fiscal 2025, which could increase costs depending on where tariffs land.
The company continued investing heavily in AI infrastructure during the quarter, with capital expenditures reaching $16.75 billion, a 53% increase.
Analysts had expected $16.37 billion. Azure revenue grew 33%, with 16% of that growth attributed to AI, exceeding the anticipated growth rates of 30% and 29% from StreetAccount and CNBC , respectively.
Gerrit Smit, Lead Portfolio Manager of the Stonehage Fleming Global Best Ideas Equity Fund, told CCN, “The bellwether of global technology stocks confirmed a continuing strong Cloud and AI market with Azure Cloud’s revenue increasing a third and the CFO confirming AI demand continues to outstrip supply.”
“With a +15% constant currency revenue growth for the quarter, shareholders can rest assured their business remains well on track despite an uncertain economic environment,” Smit added.
Microsoft stock has gained 12% in 2024 as the company has established itself as a central player in the AI revolution, with rapid growth fueled by AI adoption across its business segments.
Azure, the company’s cloud computing platform that supports AI tool deployment for businesses, recorded a 34% revenue increase last quarter. Although growth is expected to slow slightly, it remains on an impressive upward path.
Microsoft’s extensive ecosystem of products and services is further enhanced by seamless integration with its AI capabilities.
Its AI-powered Copilot features across applications offer a compelling value proposition, though the pace at which businesses embrace these subscriptions will be closely monitored.
Although Microsoft isn’t as old as some other blue-chip companies, it has built a solid reputation with 17 years of uninterrupted dividends and 13 years of growth. This makes it a versatile stock, offering both dividend growth and capital appreciation potential.
Over the years, Microsoft has steadily increased its dividend from $0.08 in 2003 to the current $0.75, with a recent 10% hike last month.
Despite rising capital expenditures (CAPEX) due to investments in artificial intelligence, Microsoft’s free cash flow comfortably covers these expenses.
Among large, well-known companies like Apple, Disney, Amazon, and Alphabet, investors sometimes invest hastily without examining the financial details, which can lead to unexpected setbacks. Even for a trillion-dollar market cap company like Microsoft, financial risks exist.
However, Microsoft has consistently met and exceeded its dividend obligations in recent years. Since 2018, Microsoft has generated more than twice the amount of free cash flow compared to the dividends paid out. This results in a conservative average payout ratio of 33% over the past six years.
At the beginning of 2023, Microsoft’s free cash flow increased by 22% year-over-year, reaching $20.7 billion. This is enough to cover the entire annual dividend amount in just one quarter.
Microsoft’s long-term price outlook remains positive, supported by historical performance trends, strong fundamentals, and favorable industry developments.
Based on forecast models , Microsoft is expected to see steady price appreciation through the decade’s end. In 2026, the stock is projected to reach $424.13 by mid-year and $439.63 by year-end.
Continued momentum may last in subsequent years, with year-end targets of $472.35 in 2027, $507.51 in 2028, $545.28 in 2029, and $585.84 by the close of 2030.
In the near term, Wall Street sentiment is also bullish . Over the past three months, 29 analysts have offered 12-month price targets for Microsoft, with an average target of $477.75.
The highest estimate is $595.00, while the lowest is $430.00. This average implies a potential upside of approximately 20.87% from the current price of $395.26.
Microsoft’s financial performance has consistently outpaced expectations. The company may post earnings per share (EPS) of $3.35 in the upcoming quarter, with estimates ranging between $3.21 and $3.63.
Microsoft reported EPS of $3.46 in the previous quarter. Impressively, the company has beaten its EPS estimates every quarter over the past 12 months, while the broader industry achieved that feat only 50% of the time.
On the sales front, the forecast for the next quarter is $72.73 billion, with estimates ranging from $70.78 billion to $74.01 billion.
Microsoft has also consistently exceeded sales expectations in the past year, outperforming the industry, which beat sales estimates only 46.53% of the time.
