Microsoft Corporation (NASDAQ: $MSFT) is a global technology company that designs, manufactures, licenses, supports, and sells software, services, devices, and solutions worldwide. It is known for products like Windows OS and Azure cloud services, as well as gaming and AI offerings.
Microsoft has pulled ahead in the race to harness AI, positioning itself as a formidable force in the cloud computing arena. On Thursday, April 25, 2024, Microsoft unveiled its fiscal 2024 third-quarter results, and the numbers were impressive.
Key Financial Highlights
The company reported revenue of $61.9 billion, marking a remarkable 17% increase year-over-year and surpassing analysts’ expectations of $60.9 billion. Net income rose 20% to $21.9 billion for a diluted EPS of $2.94, outpacing the consensus estimate of $2.83.
Microsoft’s cloud business, spearheaded by its Azure platform, continues to drive remarkable growth. The Intelligent Cloud segment, which encompasses Azure and other cloud services, generated revenue of $26.71 billion, outperforming analysts’ projections of $26.25 billion. Azure, in particular, witnessed an impressive 31% revenue growth, slightly exceeding expectations of 29%.
AI The Game-Changer
One of the most significant contributors to Microsoft’s success this quarter was the integration of AI from its partnership with OpenAI. The company’s AI services, including offerings like the Microsoft Copilot stack, accounted for 7% of the growth in Azure and other cloud services revenue. This figure represents a notable increase from the 6% points contribution in the previous quarter and the 3 points in the quarter before that.
Microsoft’s CEO, Satya Nadella, emphasized the pivotal role of AI in driving better business outcomes across various roles and industries. “Microsoft Copilot and Copilot stack are orchestrating a new era of AI transformation, driving better business outcomes across every role and industry,” he stated.
AI Demand Surges
The demand for Microsoft’s AI services has been so overwhelming that the company is struggling to keep up with the near-term demand, as revealed by CFO Amy Hood during the earnings call. “You’re seeing healthy growth really across Azure, in the non-AI and AI services, which is important. While of course, it’s still early in the long-term AI monetization opportunity, we feel good about where we are,” she said.
To address this surge in demand, Microsoft is aggressively expanding its global data center network, with capital expenditures reaching $14 billion during the quarter. Hood acknowledged that the initial demand for AI services is slightly ahead of the available data center capacity.
Microsoft Q424 and FY Guidance
Backed by the strong performance, Microsoft provided optimistic guidance for Q4 and FY fiscal 2024. The company anticipates revenue of $64 billion at the midpoint, below estimates of $64.5 billion. For fiscal 2025, Microsoft projects a sales and operating income growth of more than 10%.
Diversified Growth
While cloud and AI stole the spotlight, Microsoft’s other business segments also contributed to the impressive results. The Productivity and Business Processes segment reported revenue of $19.57 billion, beating expectations of $19.54 billion. The More Personal Computing segment, encompassing Windows, Surface, and Xbox, generated $15.58 billion in revenue, outpacing the anticipated $15.07 billion.
The resurgence of the PC market played a key role in the success of the More Personal Computing segment, with Windows OEM sales to PC manufacturers increasing by 11%. Also, the acquisition of Activision Blizzard provided a substantial boost, driving a 62% surge in Xbox content and services revenue.
A Renewed Focus In Security?
Microsoft has doubled down on cybersecurity by deploying AI tools to analyze potential threats and uncover sophisticated hacking techniques efficiently. Following a scathing report, the tech giant has embarked on its most comprehensive security revamp in over 20 years, emphasizing its uncompromising commitment to maintaining and strengthening digital defenses.
Microsoft Stock Performance
Microsoft Corporation’s (MSFT) stock rose 2.28% to $408.12 on Friday at 09:36 AM EDT following the impressive Q3 results. It marked a reversal from the previous day when the stock fell 2.45% to $399.04. Year-to-date, the stock is up 10.39% and an impressive 38.61% in the past 52 weeks compared to the 25.87% gain of the SPX in the same period.
Should You Buy Microsoft in 2024?
Microsoft’s solid Q324 performance presents a persuasive case for investing in the tech giant in 2024. With Azure leading the charge in cloud computing and the company’s AI services contributing greatly to revenue growth, Microsoft is well set to capitalize on these lucrative markets. The company’s diversified product portfolio, spanning productivity software, gaming, and security solutions, adds stability to its business model.
Its aggressive investments in data center infrastructure and ambitious growth targets for the full fiscal year signal confidence in sustaining its upward trajectory. While potential barriers and market volatility cannot be ruled out, Microsoft’s innovative spirit and strategic vision make it attractive for long-term investors seeking exposure to the technology sector.
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