Microsoft (MSFT), the software giant, beat Wall Street’s top and bottom line estimates for its last reported quarter. This was due to significant growth in Microsoft’s cloud services segment. The company has also taken several strategic initiatives in order to integrate AI into their products and services. Is it wise to buy MSFT given the volatile macro-environment this week? Find out more ....
Microsoft Corporation (MSFT), a leading tech company, reported results that were better than expected for the first fiscal quarter of 2023. MSFT, aware of the potential for AI to transform the world and its impact on society, has led the way in cutting-edge AI research, integrating the technology into their products and services. The company is well-positioned for long-term growth, as it's flexing its AI and cloud muscles.
It could be a good idea to invest in MSFT this week if you want to earn substantial returns. This article will explain why I am very bullish on MSFT.
MSFT's third-quarter 2023 revenue and earnings exceeded Wall Street estimates due to growth in the cloud computing and Office productivity businesses. The software giant also said that its artificial intelligence (AI), products are driving its sales.
Refinitiv data shows that MSFT's third-quarter revenue increased by 7% over the previous year to $52,90 billion. This was higher than Wall Street expectations of $51.02 Billion. According to Refinitiv, the company's earnings per share were $2.45, which was higher than analyst expectations of $2.23.
According to Visible Alpha's survey of 23 analysts, the growth in the cloud business Azure for the last reported quarter was 27%. This exceeded analyst expectations, which were 26.6%.
Microsoft's biggest sales are from the sale of computing devices, cloud services and systems, and software to businesses and consumers. MSFT made headlines in early 2018 with its partnership with ChatGPT creator OpenAI as it races to secure its place in generative AI.
MSFT announced on January 23 a multi-year, multi-billion dollar investment in San Francisco's OpenAI research outfit, which made headlines when it launched ChatGPT. This deal is the third phase in the partnership between MSFT and OpenAI, following previous investments made by MSFT in 2029 or 2021.
The renewed partnership will accelerate AI breakthroughs and help both companies to commercialize advanced technology in the future.
In February, Microsoft launched a brand-new Bing search engine powered by AI and Edge browser, which delivers better search results, complete answers, an improved chat experience, creative sparks, and the capability to create content.
Satya Nadella told investors in a conference that MSFT would continue to focus its efforts on three key priorities. First, MSFT will help customers maximize the value of their digital investments by utilizing the Microsoft Cloud. Second, it will invest to be at the forefront of the AI wave in all of its solution areas. Third, it is about driving operational leverage and aligning the cost structure to its revenue growth.
Satya Nadella said that Microsoft's Azure OpenAI bright combines advanced models like ChatGPT and GPT-4 with the enterprise capabilities of Azure. Azure OpenAI by MSFT combines advanced models such as ChatGPT and GPT-4, with Azure's enterprise capabilities.
MSFT CEO stated that the company has over 2,500 Azure Open AI service clients, and AI is integrated in a variety of products.
The shares of MSFT closed the last trading session $333.56, up 36.5% in the past six-months and 39.2% for the year.
What could impact MSFT's performance over the next few months?
Recent Positive Developments
MSFT and Epic announced on April 17 the expansion of their partnership to integrate generative AI in healthcare. The combination of MSFT Azure OpenAI Service and Epic's EHR Software would allow the company to address urgent healthcare challenges while providing comprehensive solutions to providers. Both companies should benefit from this collaboration.
Microsoft Security Copilot is the next-generation AI technology that MSFT released on March 28. The tool allows defenders the ability to quickly detect threats, respond and understand the threat landscape.
Security Copilot, the first generative AI product for security, allows defenders to work at AI speed and scale. More than 10,000 companies have signed up in the three months since Copilot was made available for Business. These include Coca-Cola Company, General Motors Co., and Duolingo, Inc.
MSFT's third-quarter revenue, ending March 31, 2023, increased by 7.1% over the previous year to $52.86 Billion. Its gross margin, which was $36.73 Billion, increased by 8.8%. Operating income was $22,35 billion in the third quarter of 2023, an increase of 9.8% over the previous year. Net income increased 9.4% to $18.30 Billion, and EPS increased 10.4%.
As of March 31 2023, cash and cash-equivalents of the company were $26.56 Billion, up from $13.93 Billion as of June 30 2022. Its current liabilities also decreased to $85.69 Billion, from $95.08 Billion as of June 30 2022.
Favorable Analyst Estimates
Analysts predict that MSFT will have revenue of $55.42 billion for the fourth quarter, ending June 2023. This represents a 6.9% increase year-over-year. The consensus EPS estimate for the current quarter of $2.55 represents a 14.5% improvement year-over-year. The company also exceeded the consensus EPS estimate in three out of the last four quarters.
Analysts also expect MSFT to grow its revenue and earnings per share (EPS) for fiscal year 2023 by 6.6% and 4.7%, respectively, from the prior year, to $211,38 billion and $9.64. In fiscal 2024, revenue and earnings per share are expected to increase 11.5% and 13.9%, respectively, from the previous year, to $235.74 and $10.98.
MSFT's dividend has been increasing for 18 years in a row. It pays an annual dividend of $2.72 for each share, which translates to a yield of 0.82% on the current stock price. The average yield of its four-year dividends is 0.98%. Dividend payouts for the company have increased at a CAGR of 10.2% over the last three years.
MSFT's trailing-12 month gross profit margin is 68.26%, which is 37.8% more than the industry average of 49.53%. The EBITDA margin for the trailing 12 months is 48.67%, which is 320.5% more than the industry average of 11.58%. The stock's trailing-12 month net income margin is also 966.5% greater than the industry average.
MSFT's ROCE, ROTC and ROTA for the trailing-12 months of 42.88% each, 21.97% and 19.40% respectively, compares to industry averages at 4.75%, 3.21 % and 1.52 %, respectively. The industry average is 7.50%. Its levered FCF of 22.73% for the trailing-12 months is 202.9% greater.
The strong fundamentals of MSFT are reflected by its POWR ratings. The stock's overall rating is B, which translates to a Buy according to our proprietary rating system. The POWR ratings are calculated by weighing each factor to the optimal level.
We also rate each stock according to eight categories. MSFT's B grade in Quality is in line with its profitability that exceeds the industry average. The stock also has a B-grade for Sentiment. This is consistent with the solid financials of the company and its optimistic analyst expectations.
MSFT is ranked 12th out of 52 stocks within the Software-Business sector.
We have also graded MSFT for Value, Growth and Momentum. Here you can access all of the MSFT ratings.
The software giant MSFT has seen its revenue and EBITDA grow at 14.4% and 16.6% respectively over the last three years. Its EPS also increased at a CAGR of 15.4%. The tech giant is also well-positioned to continue its growth, thanks to its strength in the cloud services segment. It continues to work on integrating AI into its services and products.
It could be a good idea to invest in MSFT based on its strong financial performance, diverse business model, high profit margins, and promising growth potentials.
How does Microsoft Corporation (MSFT), compare to its peers?
MSFT's overall POWR rating is B. You can also look at these other stocks in the Software-Business sector with an A rating (Strong Buy). These include VMware Inc.
Death trap stocks lurk in your portfolio
MSFT shares increased $1.00 (+0.30%), in premarket trade on Thursday. MSFT shares have gained 40.17% year-to-date compared to the S&P 500 benchmark index's 14.32% increase during the same time period.
Mangeet K. Bouns
Mangeet became a financial journalist and investment researcher because of her keen interest in the stock markets. Mangeet uses her fundamental approach for analyzing stocks to help investors make informed decisions.