Shares of Microsoft (MSFT) have gone on an impressive run since the start of the year, steadily climbing from approximately $370 to $425, marking a nearly 15% increase in just four months. This surge has propelled the software giant to surpass Apple (AAPL) as the world’s most valuable company by market capitalization.
Microsoft’s rise includes 10% year to date, besting the 4% rise in the S&P 500 index. A pillar of the of Magnificent Seven, Microsoft’s stock has become a staple in both retail and institutional investors’ portfolios. But is it now time to lock in some profits? Investors will get more clarity on this question when the enterprise software and cloud giant reports second quarter fiscal 2024 earnings results after the closing bell Thursday. The stock’s momentum might have only just begun.
On the other hand, the stock frothy valuation has left value investors wondering if there is any value to be realized. The company’s advances in generative artificial intelligence, as well as the billions it has spent as part of its investment in OpenAI’s ChatGPT continue to be the driving factor. Microsoft has also begun to monetize AI, and has since launched Copilot, which leverages AI to enhance its productivity software suite.
Currently used by 40% of Fortune 100 companies, and priced at $30 per month, analysts estimating that at $30 per user per month, Copilot could boost Microsoft’s fiscal 2025 revenue by as much as $9 billion. What’s more, in terms of cloud growth, as of Q3, Microsoft Azure has 24% market share for cloud infrastructure. On Thursday, the company’s guidance will nonetheless gauge how confident the management feels about its long-term growth potential.
For the quarter that ended March, the Redmond, Wash.-based tech giant is expected to earn $2.82 per share on revenue of $60.76 billion. This compares to the year-ago quarter when earnings were $2.45 per share on $52.86 billion in revenue. For the full year, ending June, earnings are projected to rise 17% year over year to $11.64 per share, while full-year revenue of $244.22 billion would mark a year-over-year increase of 15.2%.
Microsoft undeniably boasts a well-established history of success and appears poised for a promising future. Through strategic investments in gaming, cloud technology, and artificial intelligence, the company is positioned to sustain profitability amidst the continually changing technological landscape. Notably, the projected full-year revenue growth has more than doubled from 6% projected growth three months ago to 15% projected growth currently.
Bank of America analyst Brad Sills is expecting “solid” results from Azure and Office, while the heavy spending on artificial intelligence is still to come, the analyst wrote in an investor note while reiterating his Buy rating and $480 price target. The company’s push into artificial intelligence has been the main catalyst. AI is expected to fuel Microsoft’s market share among enterprise customers not only cloud adoption but also in its search capabilities.
Stills believes Microsoft is poised to benefit from further AI adoption even with the company already enjoying benefits in Azure and Copilot. Last quarter, when referencing Generative AI market, Microsoft CFO Amy Hood said “absolutely should be the fastest $10 billion business we’ve ever built.” This was certainly noticeable in Q2 as Microsoft earned $2.93 per share on $62.02 billion in revenue, thanks to revenue of $25.9 billion in its intelligent cloud unit and $19.2 billion from its productivity unit.
During the quarter, cloud services revenue, comprised of mostly Azure, grew 20% year over year, while revenue in More Personal Computing was $16.9 billion, rising 19% year over year. Given these ongoing fundamental improvements, Microsoft remains a must-own stock for any portfolio that values performance and consistent execution.
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