Microsoft's Impressive Q4 2024 Results: A Deep Dive into AI-Driven Growth

Is Microsoft Stock a Buy? | The Motley Fool

Microsoft's business is as thorough as they come, but investors should be mindful of the high valuation. For much of the past year, Microsoft (MSFT -0.30%) enjoyed the esteemed title of the world's most valuable public company. An artificial intelligence (AI)-fueled boost -- and underperformance from Apple -- helped propel Microsoft into the top spot, but a recent sell-off erased more than $300 billion in market cap over the past month (as of July 29). This sell-off has affected many tech companies, sparking rumors of a market correction coming soon. Given the uncertainty and recent performance of Microsoft's stock, many may wonder if it's a buy. Many factors contribute to that answer, but for long-term investors, it remains a yes. Microsoft is far from immune to market corrections and downturns, but it is much more insulated from huge business hits than most other tech companies. This is mostly because many of Microsoft's customers are other companies. Think about the products and services that businesses globally rely on from Microsoft. Countless companies rely on Excel for spreadsheet needs, Teams to communicate with coworkers, and other Office software for productivity. Windows PCs fill the office spaces of thousands of businesses. LinkedIn is one of the most used recruiting platforms, and Azure is the world's second-leading cloud computing platform. While other big tech companies rely heavily on consumer spending (such as Apple with its hardware) or the success of a product line (such as Nvidia with its GPUs), Microsoft has built an ecosystem with many parts that carry their own weight. This has been a huge factor in Microsoft's consistent revenue and operating income (profit from core operations) growth over the past decade. In Microsoft's third quarter of fiscal year 2024 (ended March 31), revenue and operating income increased 17% and 23% year over year, respectively. As the digital world evolved and become more connected, cloud services have become an essential part of many companies' operations and infrastructure. Amazon, with its cloud platform, Amazon Web Services (AWS), had the foresight to see this transformation and got a jump on the industry. This is mainly why AWS remains the world's leading cloud platform. Microsoft's cloud platform Azure trails behind AWS in market share (25% to 31%), but it has been picking up a lot of steam and gaining ground. Just three years ago, Azure's market share was around 19%. Microsoft Cloud's revenue grew 23% year over year to $35.1 billion and accounted for close to 57% of its total revenue in its latest quarter. Azure and other cloud services' revenue specifically increased 31% year over year. As its cloud business grows -- particularly as it integrates OpenAI's AI technologies into its products -- Microsoft should continue to see impressive profit growth. Despite the growth in Microsoft's earnings recently, its stock price growth has kept its valuation at a premium. Its price-to-earnings (P/E) ratio is just under 37, well over its average over the past five years and noticeably above the S&P 500's roughly 27.5. With Microsoft's premium valuation, investors must manage their short-term expectations because it could make the stock more susceptible to volatility if market sentiment toward tech stocks (and AI's lasting effect) changes. In the long term, though, Microsoft's prospects are as strong as ever. A good approach to Microsoft's stock is to dollar-cost average your investments. Decide on a set amount you can dedicate to the stock and then decide how often you want to make your investments. This can help reduce some volatility risks and keep the focus on making consistent investments over the long haul instead of figuring out the "best time" to invest.

1 Important Number From Microsoft's Blowout Quarter That Investors Shouldn't Sleep On | The Motley Fool

The cloud software and artificial intelligence (AI) specialist delivered robust growth, but one particular gem was buried in the report. All eyes were on Microsoft (MSFT -0.30%) after the market close on Wednesday, as investors were looking for clues as to the state of artificial intelligence (AI) adoption. The company delivered robust results that beat on both the top and bottom lines, but investors were hoping for even more. However, digging a little deeper reveals a hidden gem that investors shouldn't sleep on, as it provides insight into Microsoft's future prospects, and the news is decidedly good. For the company's fiscal 2024 fourth quarter (ended June 30), Microsoft generated revenue that grew 15% year over year to $64.7 billion. While growth decelerated slightly compared to Q3, seasonality came into play, so the growth slowdown wasn't surprising. Profits were equally robust, as diluted earnings per share (EPS) grew 10% to $2.95. For context, analysts' consensus estimates were calling for revenue of $64.4 billion and EPS of $2.93, so Microsoft surpassed both benchmarks with ease. The company's cloud infrastructure service, Microsoft Azure, continued to deliver the goods, growing 29% year over year, boosting the intelligent cloud segment, which grew 19%. This was partially offset by more modest gains from the productivity and business processes and more personal computing segments, which climbed 11% and 14%, respectively. The aforementioned growth deceleration was most noticeable in Microsoft's commercial bookings, which climbed 17%, down from 29% growth in Q3. The broad adoption of generative AI has been the driving factor behind the market rally since early last year, so investors were keenly interested in the impact of AI on the results. Indeed, AI came up 24 times during the conference call as details about the opportunity emerged. CEO Satya Nadella noted that Microsoft now had over 60,000 Azure AI customers, up 60% year over year, while the "average spend per customer continues to grow." Furthermore, the number of Azure AI customers using the company's data and analytics tools grew at a brisk pace, up 50%. Copilot -- the company's suite of AI-powered digital assistants -- has become the de facto face of Microsoft's generative AI efforts and made a strong showing as well, as users increased 60% quarter over quarter while existing users are expanding their deployments. To be clear, there are plenty of metrics that provide insight into Microsoft's performance and the trajectory of its AI aspirations. In my mind, none are more important than the impact of AI on the adoption of Microsoft Azure. Committing to a particular cloud infrastructure provider is a big decision. Many companies hedge their bets by spreading their cloud computing across a number of providers, helping to illustrate how critically important this can be to the success of a company's business. Microsoft was quick to integrate AI across its products and services early last year, making a whole host of generative AI models and systems available to its cloud customers. This, in turn, has helped the company gain share against its cloud rivals. CFO Amy Hood noted that "Azure growth included eight points from AI services, where demand remained higher than our available capacity." This marked the fifth consecutive quarter of accelerating contribution from AI. This helped Microsoft outpace its so-called "Big Three" cloud infrastructure rivals. Azure revenue grew 31% year over year in the first calendar quarter, the fastest among the Big Three and marking the third consecutive quarter growing faster than the competition, according to data supplied by research firm Canalys. This suggests that Microsoft is gaining cloud market share at the expense of its rivals, thanks to the company's early wins in AI. If this persists, Microsoft could move up the ranks and eventually take the cloud infrastructure crown. Finally, at 32 times forward earnings, Microsoft is selling for a slight premium compared to a multiple of 29 for the S&P 500. That said, the company's long track record of success and keen strategy in the AI revolutions suggests it's deserving of a premium. That makes Microsoft stock a buy.