Microsoft Stock: A Golden Opportunity Amid AI-Driven Growth and Recent Pullback

Microsoft: A Golden Opportunity After Recent Pullback (NASDAQ:MSFT)

Valuation analysis suggests MSFT is undervalued by 21%, making it a compelling investment opportunity. My previous bullish thesis about Microsoft (NASDAQ:MSFT) kept up well as the stock was ahead of the broader market before the Q2 earnings season started. However, the sell-off which started a few days ago diminished all previous gains achieved since mid-May. Today, I want to explain why I remain bullish and believe that the market's reaction to fiscal Q4 2024 earnings was unfair. All three of the company's segments maintain robust growth momentum, led by the stellar Intelligent Cloud business. The operating leverage is still resilient, and MSFT is still an FCF machine, even despite aggressively ramping up R&D and CAPEX spending. The valuation looks extremely attractive at current levels, according to the DCF model. All in all, I reiterate "Strong Buy" rating for MSFT. Microsoft delivered another strong quarter on July 30, beating revenue and EPS consensus estimates. Revenue grew by 15.2% YoY in fiscal Q4 2024. The adjusted EPS expanded from $2.69 to $2.95 and operating leverage was one of the key factors to the bottom-line success. Microsoft's operating margin was approximately flat on a YoY basis, but it is explained by the increased R&D spending while the SG&A to revenue ratio shrank from 14.95% to 14%. Therefore, I think we can say that the company continues exercising solid operating leverage, which is a bullish sign. As a result of the solid operating leverage, Microsoft's generated $12.4 billion in levered free cash flow [FCF] during the quarter, even despite a $5 billion YoY increase in CAPEX. As a result of strong FCF, the company's balance sheet continued fortifying and MSFT currently has a $75 billion cash pile. This reserve provides MSFT with robust financial flexibility and makes it well-positioned for large acquisitions. To add context which will help understand how big Microsoft's cash reserve is, the company acquired Activision Blizzard for $69 billion in 2023. The company continues witnessing strong demand for Intelligent Cloud offerings, including artificial intelligence [AI] features and services. This business line outpaced consolidated revenue growth with a 19% segment's topline increase on a YoY basis. Azure grew by 29% YoY, which indicates that the momentum for MSFT's cloud and AI capabilities is still strong. According to Digital Information World, calendar Q2 2024 was the quarter when Microsoft's market share in the global cloud infrastructure market narrowed. On the other hand, growth is never linear, and the below chart clearly demonstrates that the calendar Q2 pullback in market share aligns with MSFT's historical trajectory, and it looks like a normal pullback before the growth continues. Microsoft is willing to keep strong momentum for its Cloud and AI business for longer, which I see from investments into this area ramping up rapidly. The company plans to invest billions of dollars in data centers and AI hubs across the world. A 2.2 billion euros investment in data centers in Spain was officially announced by the company. The company has also recently announced a partnership with Lumen Technologies (LUMN) to expand its network capacity to support rising demand on data centers. This aggressive pace of pouring billions of dollars into AI infrastructure indicates the management's strong conviction in this bet. Microsoft likely does not want to miss out on a potential $1.3 trillion market opportunity, and the decision to invest aggressively in data centers appears to be a sound move. My optimism is also backed by the fact that Intelligent Cloud is not the only Microsoft's business that demonstrates growth. Productivity and Business Processes, and More Personal Computing also demonstrated solid revenue growth both in fiscal Q4 and for the full year. The same applies to the operating income, as both segments contributed substantially to the consolidated operating leverage. With all three business segments demonstrating double-digit revenue growth led by its jewel in the crown, the Intelligent Cloud business, I think there are no reasons to be less bullish. The operating leverage potential is still solid, and MSFT is still an FCF machine, even despite aggressive growth in CAPEX spending. Microsoft's stock rallied by around 20% over the last twelve months and delivered a 5% return YTD. Valuation ratios are inherently high compared to the sector median because of Microsoft's unmatched scale and strategic positioning. For companies like MSFT, I usually look at the comparison between current valuation ratios and historical ones. From this perspective, MSFT looks attractively valued, as its current multiples are close to the last five years' averages. To figure out my target price, the discounted cash flow [DCF] approach was selected. I use the same 8.25% WACC as I did in my previous simulation, which is in line with the recommended range by valueinvesting.io. Revenue growth is a crucial assumption which significantly affects the fair value. Consensus estimates forecast revenue CAGR for the next decade to be 11%. This assumption appears to be too pessimistic, in my opinion. According to the below chart, MSFT demonstrated 11.3% revenue CAGR over the last decade when there was no comparable digital revolution which we evidence nowadays. I believe that given MSFT's positioning in the AI revolution, upgrading the last decade's CAGR by at least two percentage points will be fairly conservative. Therefore, I implement a 13.3% revenue CAGR for the next decade. For the base year, I implement a TTM levered FCF margin of 23.13%. Considering MSFT's strong track record of profitability improvement and bright revenue growth prospects, I incorporate a 50 basis points yearly FCF expansion. With all the above underlying assumptions, the business's fair value is $3.67 trillion. It is 21% higher than the current market cap, indicating the stock is substantially undervalued. A 21% discount to the fair value looks like a compelling investment opportunity for a behemoth like MSFT. A few weeks ago, we all witnessed a global outage in Microsoft's services. Despite it appears that the outage was not due to Microsoft's problems but due to updates in CrowdStrike's (CRWD) software update, I think that this situation damaged Microsoft's reputation as well. Investors should understand that they face significant cybersecurity risks, and outages can happen even with such behemoths like MSFT. The competition to be the leading company in the current AI revolution is fierce. Not only does Azure improve its strategic position, but Google's Cloud also demonstrates robust momentum. Google Cloud revenue jumped by 28.8% in Q2, indicating that the competitor which was considered as a laggard compared to AWS and Azure is gaining its recognition in the market. Moreover, Google plans to keep this momentum as the company is pouring billions of dollars into new data centers to fuel further cloud and AI growth. AWS plans to make the largest capital investment in the state of Indiana's history, with its $11 billion planned to be invested into new data centers. Being the world's largest company with a massive footprint across several industries means that antitrust risks might be inevitable for Microsoft's investors. Recent news suggests that Microsoft has been charged by the EU with anti-competitive behavior by bundling its Teams app with its Office suite. Investors should understand that due to its massive footprint and dominance in the market, there are always risks that MSFT might face multi-billion antitrust fines which will adversely affect the bottom line. To conclude, MSFT is still a "Strong Buy". The recent pullback looks like a good buying opportunity, as the stock currently trades at a substantial discount to its fair value. The company continues delivering staggering revenue growth across all segments, and its operating leverage is still strong.

Microsoft Stock Q4: Azure Should Make A Comeback Thanks To AI (NASDAQ:MSFT)

Google's regulatory challenges in the search business create an opening for Microsoft's Bing, with potential for market share gains and revenue growth. Microsoft (NASDAQ:MSFT) released its fourth-quarter results last week. In this article, I am initiating coverage of the company by analyzing its latest earnings report and investigating the setback seen in Azure's growth along with the growth prospects for its search business. Microsoft delivered a solid fourth-quarter performance, in my opinion. Q4 Revenues came in at $64.7 billion, up 16% y/y in constant currency, beating analyst estimates by $287.8 million. Diluted EPS came in at $2.95, up 11% y/y in constant currency and beating analyst estimates by $0.01. Operating margins came in at 43%, relatively unchanged y/y, and free cash flows came in at $23.3 billion, up 18% y/y. For the full year, revenues totaled $245.1 billion, representing a y/y growth of 15% in constant currency, and diluted EPS came in at $11.8, representing a y/y growth of 22%. For FY24, operating margins came in at 44.6%, which represents a y/y expansion of 280 bps. The company ended the year with $75.5 billion in cash and short-term investments. The tech giant now expects both FY25 revenues and operating income to grow at double-digits y/y. FY25 Operating expenses are projected to grow in the single-digits and operating margins are expected to be down by about 1% y/y. FY25's effective tax rate is expected to be around 19%, and capital expenditures are expected to be higher than the FY24 number, which was $44.5 billion. For Q1 of FY25, the company now expects revenues to come in the range between $63.8 and $64.8 billion, falling short of analyst estimates of $65.1 billion. Growth in Azure is expected to be in the range between 28% and 29% in constant currency. COGS for Q1 is expected to be between $19.95 and $20.15 billion, operating expenses are projected to come in between $15.2 and $15.3 billion, and other income and expenses are expected to be approximately negative $650 million. The effective tax rate for Q1 is also expected to be about 19%. One of the main issues that investors appear to have with the major AI players recently has been the so-called "excessive" spending on AI. Big Tech's capex spending has significantly increased, as evidenced by their latest earnings reports. More specifically, Alphabet spent $13.2 billion (y/y growth of 91%), Meta Platforms spent $8.5 billion (y/y growth of 33%), and Amazon spent $17.6 billion (y/y growth of 54%). Microsoft, who is considered to be the first-mover in AI among Big Tech, given that the AI revolution began when it invested in OpenAI in my opinion, was no different, as it spent $19 billion in the latest quarter, which represents a y/y growth of 77%. Moreover, these four companies have now spent $106 billion combined for the first six months of 2024. And the spending is only set to increase in the coming years. As mentioned in my last article on Alphabet, analysts project the total capex spend by Big Tech, primarily driven by AI, to exceed $1 trillion within the next five years. The issue that investors have with this scenario, and we saw this with Alphabet as well after its earnings release, is that they are unsure about the timeline of the ROI on these investments. Now, while the majority of software companies have not offered any concrete evidence of how much AI is driving their growth, Microsoft was different in that respect. Management clearly stated that AI contributed 8% to the overall growth of Azure, which was up from 7% in the previous quarter and 6% from two quarters ago. This suggests that the spending is translating to growth, and while the growth may not be explosive, it does signal a steady uptrend. There was more evidence of how AI is driving growth in the company's other segments. For instance, during the earnings call, CEO Satya Nadella mentioned that the growth in the number of Azure AI customers jumped to 60% y/y. The company's Models as a Service segment, where the company provides API access to third-party AI models saw the number of paid customers more than double sequentially. The company's data and analytics tools also got a boost from Azure AI customers, as the number of these customers who were also using the tools jumped nearly 50% y/y. And finally, Copilot, Microsoft's AI assistant accounted for over 40% of GitHub's revenue growth in FY24. GitHub's annual revenue run rate stands at $2 billion, which translates to an additional $800 million from AI. While this might seem a small number for a company that just generated $245 billion in revenues in FY24, it is not just the revenues that one needs to look at, but also how Copilot is driving growth in terms of other metrics such as customer acquisition. Finally, one of the main reasons why investors were disappointed by Microsoft's quarter, was the slowdown in growth seen in Azure. More specifically, revenues from Azure generated a growth of 29% y/y (30% in constant currency), missing both the company's expectations of anywhere between 30% and 31% and the analysts' estimates of more than 30% growth. During the earnings call, management attributed the slow growth to capacity constraints as well as a slowdown in Europe. Management now expects Azure growth to accelerate in the second half of FY25, as the company's capital investments drive up the available AI capacity. In recent times, the success/failure of Microsoft's quarter has been entirely dependent on how Azure performs. Q4 was no different, but it was clear that one of the main reasons behind the slowdown in Azure growth was the AI-related capacity constraints, which makes it a supply problem and not a demand problem, given that demand for Azure AI remains strong. Therefore, taken together, it is clear that AI is generating revenues and profits for Microsoft, and while the growth may not be explosive, it is heading in the right direction. The company simply cannot keep up with the demand and as such, based on current evidence, it does suggest that Microsoft is right in continuing to invest in AI. It would be a different matter altogether if, in the second half of the year, the company increases its AI capacity, and yet this has no impact on Azure growth. Maybe then, investors could start questioning the company's AI spend. Until that day comes, in my opinion, higher investments in AI are simply not a convincing excuse to dump the stock. One of the biggest news in the Tech space that occurred earlier this week was related to Google and its search business. More specifically, the company lost an antitrust case related to its Search business, as the US District Judge ruled that the company "exploited its market dominance to stomp out competitors." Moreover, the judge also sided with the Justice Department that Google "suppressed competition" by paying operators of web browsers and phones billions of dollars to be the default search engine. While the case could still take years to be fully resolved, especially since Google plans to appeal the ruling, the ruling does create an opening for MSFT and its Search business. One of the risk factors that I outlined in my thesis on Alphabet was the rising competition in the Search business, primarily due to AI-driven search. Microsoft, recently, announced that it has added gen-AI capabilities to Bing. Combine this with the new ruling, and it sets a base for Microsoft to gain market share in the Search business. The company, in the latest quarter, saw its Search and Advertising revenues jump 19% y/y, with both Bing and Edge registering strong volume growth. According to Statcounter, Bing's market share worldwide, for Desktop Search, has gone from 6.44% in 2021 to 10.96% in 2024. Google, on the other hand, has seen its market share drop from 86.6% to 81.1%. In the US, Bing's market share has gone from 11.4% in 2021 to 17.5% in 2024 whereas Google has seen its Market share drop from 81.1% to 75.5% during the same period. While the stats clearly show that Google is miles ahead of MSFT when it comes to Search, the steady drop in market share for the former over the last three years is noteworthy, especially in the US. The latest ruling could also lead to Google losing its position as the default search engine on Safari, which could create a massive opening for MSFT, especially now that it has added gen-AI capabilities to Bing. The search business of MSFT may still be very small compared to Google's, but the progress made so far, since the AI revolution has started, along with the latest regulatory setback for Google could allow MSFT to make a substantial inroads into the Search & Advertising Business. This also becomes yet another reason why the company's AI spend is justifiable. Source: LSEG Data (formerly Refinitiv), Author's Calculations, Seeking Alpha, and Microsoft Q4FY24 Earnings Transcript As mentioned earlier, the company now expects FY25 revenues to grow double-digits y/y. The company's trailing 5-year CAGR, according to LSEG Data, stands at 14.3%. For FY24, the y/y revenue growth came in close to this figure, at 13.83%. While the company is seeing strong demand for its AI services, it does remain capacity-constrained. As such, I don't expect an explosive growth in FY25. Keeping this in mind, I have assumed revenue growth of 14.3%, its trailing 5-year CAGR, for my calculations. This results in FY25 revenues coming in at $280.1 billion. The company expects operating margins to be down by 1% in FY25, which is reasonable in my opinion, given that they are expected to spend heavily on AI-related investments. I have factored this decline in my calculations, so my projected operating margins are 43.6%, which translates to an operating income of $122.1 billion. I am assuming the FY24 figure of negative $1.32 billion for my projections of FY25 other expenses. The company already expects a negative $650 million for the first quarter, so I do expect this figure to be in the red for the full year. This would result in net income (before taxes) of $120.8 billion. At an effective tax rate of 19%, which is what management's projections for FY25 are, FY25 net income (after taxes) is projected to come in at $97.85 billion. According to LSEG Data, the diluted weighted average number of shares outstanding stands at 7.47 billion. This results in a projected FY25 EPS of $13.1, which shows a y/y growth of 11%, lower than its long-term earnings growth rate of 14.6%. The company currently trades at 31.3x, according to LSEG Data (formerly Refinitiv) slightly more expensive than its historical forward median P/E of 30x. It is substantially more expensive than all of its peers, especially the rest of the Sensational Six, except Amazon and Nvidia. Given the earnings growth for the next twelve months is not that strong in my opinion, I have assumed its historical forward P/E of 30x for my calculations. The company, according to Seeking Alpha, currently trades at a forward PEG ratio of 2.3, which is around its 5-year historical average. At a forward P/E of 30 and a forward PEG ratio of 2.3, the projected earnings growth comes in at 13.04%. At this growth rate, FY26 EPS is projected to be $14.81. A forward P/E of 30x and a projected EPS of $14.81 result in a price target of $444, which represents an upside of about 12% from current levels. Given the limited upside from current levels, I wouldn't recommend initiating a new position at these levels. Having said that, given the market meltdown that we are currently experiencing in the US on account of recession fears, the opportunity to get into this stock may not be far away. The main risk factor for the company is the one that I mentioned earlier whereby the increase in AI capacity still does not translate into meaningful growth of Azure. Of course, investors would then be perfectly valid to question whether the ROI on AI is meaningful enough. The other risk factor is also related to spending. As mentioned earlier, it is not Microsoft alone who is spending. Everyone within Big Tech is spending on AI. And the race is heating up among competitors. AWS, for instance, had a better-than-expected growth in the recent quarter. Google Cloud also saw impressive growth, both in terms of revenues and operating profits. The competition is heating up, which could also have an adverse impact on the ROI from the capex spend. Microsoft, in my opinion, had an impressive finish to the fiscal year. Both the revenues and EPS came in above expectations. While Azure's growth narrowly missed analyst expectations, the decline in growth is more likely to be temporary, given that it was primarily due to capacity constraints rather than a lack of demand. AI's contribution towards Azure has been steadily increasing, and together with the capacity constraints plaguing the company, MSFT is fully justified to spend on AI-related capital expenditures. The rest of Big Tech is doing it, and at this stage of AI adoption, the company simply cannot afford to be left behind, given that it still has the first-mover advantage. Alphabet's regulatory troubles for its Search business also opens the door for Microsoft's Bing business. The company recently added gen-AI capabilities to its search engine, and this has seen substantial growth in the company's search and news advertising business. While it would take years to resolve Alphabet's case, there would still be opportunities for Microsoft to pounce. From a valuation perspective, the stock has limited upside from current levels, based on my estimates. Having said that, the recent unwinding of the AI trade along with recession fears are likely to create an entry opportunity for new investors. In such a scenario, there is no reason not to get into this name. The spending on AI is not an option, it is a necessity. And for a transformative technology like AI, there is no such thing as "excessive spending" today.

Nasdaq Correction: My Top "Magnificent Seven" Stock to Buy in August | The Motley Fool

The sell-off in top growth stocks is a buying opportunity for patient investors. Last week's sell-off pushed the Nasdaq Composite into correction territory. A correction is defined as a drawdown of at least 10% from a high, whereas a bear market is at least 20%. The Nasdaq Composite hit an all-time high in early July, only to evaporate trillions in market cap by the end of the month. The "Magnificent Seven" -- a term used to describe Apple, Microsoft (MSFT -0.29%), Nvidia, Alphabet, Amazon, Meta Platforms, and Tesla -- has been hit particularly hard by the sell-off. Investors looking to buy the dip in top growth stocks may be wondering which Magnificent Seven stock is the most compelling opportunity. While you could make a case for each of the seven companies, Microsoft stands out to me. Here's why it's worth considering in August. The sell-off in Microsoft stock pushed the price-to-earnings (P/E) ratio closer to median levels over the short, medium, and long terms. What's more, the forward P/E ratio is nearly the same as the 10-year median -- suggesting that Microsoft would be a particularly good value if the stock price continues to languish and earnings over the next year are as expected. Judging a company based on P/E alone leaves out some important context. Any company can boost earnings in the short term by drastically cutting costs, even if that hurts it in the long run. Microsoft is doing the opposite. It is aggressively ramping up spending to invest in growth even if that means lower earnings in the near term -- which makes its valuation that much more attractive. As companies mature, they implement capital return programs (dividends and/or stock repurchases) to directly reward shareholders. Capital return programs take the pressure off the need for potential capital gains to be the sole reason for owning a stock. Microsoft is decades removed from being a young, up-and-coming growth stock. It pays more dividends than any other S&P 500 component. Its dividend has grown at a compound annual rate of over 10% over the last decade. It also buys back a lot of stock to reduce its outstanding share count and help offset stock-based compensation and potential share dilution. However, there has been a notable shift in Microsoft's capital allocation in recent years. Microsoft's research and development (R&D) expense and stock buybacks at one time were roughly the same and grew at the same rate, but they have since diverged. Buybacks are down about 50% in the last two years, while R&D expenses continued to climb. Microsoft is slowing the pace of buybacks to invest in growth -- specifically, cloud and artificial intelligence (AI) offerings. During the company's fourth-quarter earnings call Microsoft CFO Amy Hood said Microsoft expects capital expenditures to be higher in 2025 than 2024, but operating expenditure would grow in only the single digits. That is expected to keep operating margins in 2025 down only 1 point from 2024, she said. While some investors may look at the lower buybacks as a red flag, I believe it's a sign Microsoft continues to innovate. Especially in the tech sector, innovation is key to staying relevant. Twenty years ago, Windows was Microsoft's flagship product. Today, cloud infrastructure is arguably the greatest growth catalyst. Microsoft's willingness to accelerate spending is a bold bet that those investments will translate to earnings growth. If they don't, investors will likely scrutinize the company for wasting capital that could have been put toward better endeavors. The sell-off in Microsoft stock in response to the quarterly print may be due to slowing cloud growth. And while Microsoft's results could be just OK in the near term, the company is doing a good job of focusing on the big picture and making the necessary investments to position the business for sustained growth. Results have been excellent on the AI front, with Azure AI customers, Copilot generative AI engagement, and AI services all delivering. Microsoft realizes that in order to take market share from Amazon Web Services and Google Cloud -- and to hold off smaller players like Oracle -- it has to give customers compelling reasons to stay within the Azure ecosystem. Its solution is to improve the service through AI investments, which are leading to a lower Microsoft Cloud gross margin. Now is the time for Microsoft to make these bold investments, because it has the earnings power and profitability needed to take a hit on margins. Microsoft's operating margin and revenue growth have both exploded higher in recent years -- translating to impeccable profitability that has fueled organic growth and the massive capital return program. Microsoft's high operating margin is a critical component of the investment thesis. So, investors certainly don't want to see the trend reverse. However, Microsoft could win in the long run if it sacrifices some profitability in the short term to reinvest in the business, take market share in cloud infrastructure, grow revenue, and then decelerate spending down the line to boost margins. Like everything in investing, it's a balancing act of spending appropriately and making those investments pay off. The key takeaway is that Microsoft is coming from a position of strength. Reading too much into a quarterly performance misses the big picture of what the company is trying to achieve. There are plenty of reasons why a stock can stand out as a better buy than others. It can be the valuation, potential earnings growth, or the passive income opportunity, to name a few. For me, the simplest reason why Microsoft is my top Magnificent Seven stock to buy in August is that I agree with the vision of the company and management's decision-making. Buybacks immediately grow earnings per share by reducing shares outstanding. But if that money could be better deployed in innovation that can grow earnings at a faster rate, then it could be an even greater benefit to shareholders. Unlike some companies, which may be able to monetize AI in a specific way, Microsoft is developing AI tools for consumers and enterprises across its product categories. In this vein, it is essentially a diversified AI play. The rise of Microsoft Azure helped the company break out from a period of stodgy growth. And Microsoft could easily rest on its laurels and become even more of a cash cow. But it isn't doing that, choosing instead to seize some of its greatest investment opportunities in decades without hurting the balance sheet or going overboard with leverage. Now is an exciting time for Microsoft, and investors who agree with its strategy may want to take a closer look at the stock in August.

Is It Too Late to Buy Microsoft Stock? | The Motley Fool

The company has a thoroughly diverse business that delivers consistent long-term growth. Microsoft's (MSFT -0.29%) stock is down more than 11% over the last month, brought down by multiple factors. A tech sell-off kicked off in July, fueled by concerns in the chip market and the beginning of earnings season. Then, Microsoft's stock was brought down further when the company released its fourth quarter of 2024 results. The period beat expectations on several fronts, including revenue and earnings per share. However, a miss in its cloud division saw Microsoft's stock price tumble 7% in after-hours trading on July 30, as Wall Street grew wary of the company's prospects in artificial intelligence (AI). Yet recent stock market fluctuations only highlight the importance of investing with a long-term mindset. Despite a dip, Microsoft remains a tech behemoth that has seen its share price rise 853% over the last decade. The company holds leading positions in multiple high-growth sectors, including productivity software, cloud computing, gaming, digital advertising, and AI. Microsoft's prominence in tech and a recent dip might have some investors concerned that its stock has hit its ceiling and it's too late for new investors to see significant gains. However, tech is an ever-expanding industry that is moved forward by companies like Microsoft that consistently reinvest in their businesses. So, here's why Microsoft remains a compelling buy this year. Microsoft's Q4 2024 revenue rose 15% year over year to $65 billion, beating analysts' forecasts by $260 million. Earnings per share of $2.95 also outperformed Wall Street estimates by $0.02. Growth was primarily thanks to double-digit revenue jumps in its three main segments. However, the earnings beat was overshadowed by a miss in Microsoft's intelligent cloud segment, which posted revenue of $28.52 billion compared to expectations of $28.69. Despite the miss, the segment still reported year-over-year sales gains of 19%. Meanwhile, revenue from Azure and other cloud services soared 29%. Microsoft's cloud performance largely represents its position in AI as its platform, Azure, offers a range of generative features. Considering the hype surrounding AI since the start of last year, Microsoft's slight miss sent Wall Street into a panic. However, the company maintains significant potential in the industry. Rising cloud competition from Amazon Web Services (AWS) and Alphabet's Google Cloud means cloud growth will likely be gradual for Microsoft. However, the company's dominance in tech and diverse business model grants it multiple ways to expand in AI. The second quarter of 2024 saw revenue in Microsoft's productivity and business processes segment increase by 11% year over year, alongside a 13% rise in Office Commercial products. The growth comes after the company introduced several new AI tools to its Office productivity suite, including Copilot, an AI assistant that boosts efficiency with language generation tools and is a $30 monthly add-on to a Microsoft 365 subscription. In addition to cloud computing and productivity services, Microsoft has a consistently expanding personal computing business that posted sales growth of 14% year over year in the company's latest quarter. The segment allows another avenue for AI growth in the coming years as Microsoft's technology improves and AI PCs become a larger part of the PC market. Microsoft is home to a thoroughly diverse business, which allows it to give areas like cloud computing time to flourish in AI. Outperforming estimates in Q4 2024 illustrate the reliability of Microsoft's business and leading role in tech. Microsoft's stock has risen 21% in the last 12 months, outperforming the S&P 500's 17% rise. Meanwhile, its free cash flow has steadily climbed 17% to $74 billion, indicating that Microsoft is well equipped to continue investing in its business and keep up with its rivals. The Windows company is on a promising growth path, with a recent dip in its share price only strengthening the bullish argument for its stock. Along with a tumbling share price, Microsoft's price-to-earnings (P/E) ratio and price-to-sales (P/S) have also decreased by 11%, representing a boost in its stock's value. The data in the table above shows Microsoft's P/E and P/S currently sit at 35 and 41. These figures don't illustrate a significant bargain on their own. However, they are below Microsoft's 12-month averages for both metrics, indicating that its stock is a better value than it has been for most of the last year. In addition to its diversified business model, potent role in tech, and vast cash reserves, Microsoft remains an attractive long-term investment. Its solid outlook suggests it is not too late to still enjoy major gains from this tech giant in the coming years.