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Microsoft (MSFT) Azure Grows 29% in Q4: Time to Buy the Stock?
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Microsoft (MSFT - Free Report) reported strong growth in its Azure cloud computing segment for the fiscal fourth quarter of 2024, with revenues increasing 29% (up 30% at cc) year over year, including roughly 8 points from AI services where demand remained higher than available capacity. Intelligent Cloud, which includes Azure, server products and enterprise services, generated a robust $28.5 billion in revenues in the fiscal fourth quarter, marking a 19% year-over-year increase. (Read More: Microsoft Q4 Earnings & Revenues Beat on Cloud Success)
The robust growth in Azure comes amid increasing competition in the cloud computing market, particularly from rivals Amazon (AMZN - Free Report) -owned Amazon Web Services (AWS) and Alphabet (GOOGL - Free Report) -owned Google Cloud. Microsoft's ability to maintain such significant growth rates in this competitive landscape demonstrates the company's strong market position and effective strategic execution. This performance has caught the attention of investors and analysts alike, prompting discussions about whether now is an opportune time to invest in the tech giant.
We expect cloud services and AI innovations to remain a key growth driver for Microsoft. We believe that the ongoing digital transformation trend, coupled with Microsoft's strong enterprise relationships and comprehensive product ecosystem, positions the company for continued success. For the fiscal first-quarter 2025, Microsoft expects Intelligent Cloud revenues between $28.6 billion and $28.9 billion. In Azure, MSFT expects revenue growth at cc between 28% and 29%.
Shares of MSFT have returned 10.9% year to date compared with the broader Zacks Computer & Technology sector’s growth of 17.2%.
Year-to-Date Performance
Image Source: Zacks Investment Research
Microsoft's AI Dominance: Expanding Horizons in Cloud Computing
Microsoft presents a strong investment case with its dominant position in cloud computing (Azure) and productivity software (Office 365), driving consistent revenue growth. Microsoft continues to solidify its position as a leader in artificial intelligence (AI) and cloud computing, offering an unparalleled diversity of AI accelerators. The company's strategic partnership with OpenAI remains the cornerstone of its AI innovation, with Azure OpenAI Service providing access to frontier models like GPT-4o and GPT-4o mini.
The tech giant's AI offerings are gaining traction across industries, with companies like H&R Block, Suzuki and Telstra leveraging these advanced technologies. Microsoft's Phi-3, a family of powerful small language models, has attracted high-profile clients, including BlackRock and Emirates.
Microsoft's Models as a Service has seen significant growth, with the number of paid customers more than doubling quarter over quarter. This service simplifies the use of large language models (LLMs) and small language models (SLMs) for developers, attracting clients from diverse sectors.
Azure AI, Microsoft's app server for the AI wave, continues to expand its customer base, growing nearly 60% year over year to more than 60,000 clients. The company is also making strides in cloud migration, with Azure Arc customers increasing 90% year over year.
Microsoft's dominance extends to enterprise solutions, as it remains the preferred cloud provider for SAP and Oracle workloads. The company's next-generation analytics platform, Microsoft Fabric, has gained over 14,000 paid customers, showcasing a 20% quarter-over-quarter increase.
As Microsoft continues to innovate and expand its AI and cloud offerings, it cements its position as a frontrunner in the rapidly evolving tech landscape. The Zacks Consensus Estimate for MSFT’s fiscal 2025 revenues is pegged at $277.25 billion, indicating 13.1% growth year over year. The consensus mark for earnings per share is pegged at $13.17, indicating 10.8% growth year over year.
Image Source: Zacks Investment Research
Microsoft Copilot: Revolutionizing Productivity Across Industries
Microsoft's Copilot, an AI-powered productivity tool, is making significant strides across various sectors, transforming how organizations operate. GitHub Copilot, now adopted by over 77,000 organizations, including BBVA and FedEx, has seen 180% year-over-year growth. It is a key driver of GitHub's revenues, which have reached a $2 billion annual run rate.
The integration of generative AI into Microsoft's Power Platform has enabled over 480,000 organizations to leverage AI capabilities, with the platform's monthly active users growing 40% year over year to 48 million. Copilot for Microsoft 365 is rapidly becoming indispensable for knowledge workers, with its daily users nearly doubling quarter over quarter.
Microsoft is extending Copilot's reach into specific industries, notably healthcare. DAX Copilot, adopted by over 400 healthcare organizations, has seen a 40% quarter-over-quarter increase in purchases. In the security sector, Copilot for Security has attracted over 1,000 paid customers.
The impact of Copilot extends to consumer engagement as well, with users creating over 12 billion images and conducting 13 billion chats to date, marking a 150% increase since the start of the calendar year.
As Microsoft continues to innovate and expand Copilot's capabilities, it's clear that AI-driven productivity tools are becoming increasingly central to modern business operations.
Microsoft's Valuation: A Premium Price for Growth Potential
Microsoft's current valuation presents a premium scenario, with its forward 12-month P/S of 11X exceeding both the industry average of 7.99X and its own historical median of 10.06X. This elevated pricing reflects strong investor confidence in Microsoft's future growth, particularly in cloud computing and AI. However, it also raises questions about the potential limitations. Investors must carefully weigh Microsoft's market strength and growth prospects against the risks associated with its high valuation. The key consideration is whether the company's performance and potential can justify this premium pricing in the long term.
MSFT’s P/S F12M Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
Conclusion
Microsoft's strong performance in Azure cloud and AI offerings is expected to drive substantial growth in the near term despite a premium valuation and fierce competition in the cloud market. The company's strategic focus on cloud services, AI integration and innovative product development have positioned it favorably in the competitive market. Maintaining a position in this Zacks Rank #3 (Hold) stock appears prudent at present. New investors should, however, wait for a better entry point for Microsoft.
Image: Bigstock
Microsoft (MSFT) Azure Grows 29% in Q4: Time to Buy the Stock?
Microsoft (MSFT - Free Report) reported strong growth in its Azure cloud computing segment for the fiscal fourth quarter of 2024, with revenues increasing 29% (up 30% at cc) year over year, including roughly 8 points from AI services where demand remained higher than available capacity. Intelligent Cloud, which includes Azure, server products and enterprise services, generated a robust $28.5 billion in revenues in the fiscal fourth quarter, marking a 19% year-over-year increase. (Read More: Microsoft Q4 Earnings & Revenues Beat on Cloud Success)
The robust growth in Azure comes amid increasing competition in the cloud computing market, particularly from rivals Amazon (AMZN - Free Report) -owned Amazon Web Services (AWS) and Alphabet (GOOGL - Free Report) -owned Google Cloud. Microsoft's ability to maintain such significant growth rates in this competitive landscape demonstrates the company's strong market position and effective strategic execution. This performance has caught the attention of investors and analysts alike, prompting discussions about whether now is an opportune time to invest in the tech giant.
We expect cloud services and AI innovations to remain a key growth driver for Microsoft. We believe that the ongoing digital transformation trend, coupled with Microsoft's strong enterprise relationships and comprehensive product ecosystem, positions the company for continued success. For the fiscal first-quarter 2025, Microsoft expects Intelligent Cloud revenues between $28.6 billion and $28.9 billion. In Azure, MSFT expects revenue growth at cc between 28% and 29%.
Shares of MSFT have returned 10.9% year to date compared with the broader Zacks Computer & Technology sector’s growth of 17.2%.
Year-to-Date Performance
Image Source: Zacks Investment Research
Microsoft's AI Dominance: Expanding Horizons in Cloud Computing
Microsoft presents a strong investment case with its dominant position in cloud computing (Azure) and productivity software (Office 365), driving consistent revenue growth. Microsoft continues to solidify its position as a leader in artificial intelligence (AI) and cloud computing, offering an unparalleled diversity of AI accelerators. The company's strategic partnership with OpenAI remains the cornerstone of its AI innovation, with Azure OpenAI Service providing access to frontier models like GPT-4o and GPT-4o mini.
The tech giant's AI offerings are gaining traction across industries, with companies like H&R Block, Suzuki and Telstra leveraging these advanced technologies. Microsoft's Phi-3, a family of powerful small language models, has attracted high-profile clients, including BlackRock and Emirates.
Microsoft's Models as a Service has seen significant growth, with the number of paid customers more than doubling quarter over quarter. This service simplifies the use of large language models (LLMs) and small language models (SLMs) for developers, attracting clients from diverse sectors.
Azure AI, Microsoft's app server for the AI wave, continues to expand its customer base, growing nearly 60% year over year to more than 60,000 clients. The company is also making strides in cloud migration, with Azure Arc customers increasing 90% year over year.
Microsoft's dominance extends to enterprise solutions, as it remains the preferred cloud provider for SAP and Oracle workloads. The company's next-generation analytics platform, Microsoft Fabric, has gained over 14,000 paid customers, showcasing a 20% quarter-over-quarter increase.
As Microsoft continues to innovate and expand its AI and cloud offerings, it cements its position as a frontrunner in the rapidly evolving tech landscape. The Zacks Consensus Estimate for MSFT’s fiscal 2025 revenues is pegged at $277.25 billion, indicating 13.1% growth year over year. The consensus mark for earnings per share is pegged at $13.17, indicating 10.8% growth year over year.
Image Source: Zacks Investment Research
Microsoft Copilot: Revolutionizing Productivity Across Industries
Microsoft's Copilot, an AI-powered productivity tool, is making significant strides across various sectors, transforming how organizations operate. GitHub Copilot, now adopted by over 77,000 organizations, including BBVA and FedEx, has seen 180% year-over-year growth. It is a key driver of GitHub's revenues, which have reached a $2 billion annual run rate.
The integration of generative AI into Microsoft's Power Platform has enabled over 480,000 organizations to leverage AI capabilities, with the platform's monthly active users growing 40% year over year to 48 million. Copilot for Microsoft 365 is rapidly becoming indispensable for knowledge workers, with its daily users nearly doubling quarter over quarter.
Microsoft is extending Copilot's reach into specific industries, notably healthcare. DAX Copilot, adopted by over 400 healthcare organizations, has seen a 40% quarter-over-quarter increase in purchases. In the security sector, Copilot for Security has attracted over 1,000 paid customers.
The impact of Copilot extends to consumer engagement as well, with users creating over 12 billion images and conducting 13 billion chats to date, marking a 150% increase since the start of the calendar year.
As Microsoft continues to innovate and expand Copilot's capabilities, it's clear that AI-driven productivity tools are becoming increasingly central to modern business operations.
Microsoft's Valuation: A Premium Price for Growth Potential
Microsoft's current valuation presents a premium scenario, with its forward 12-month P/S of 11X exceeding both the industry average of 7.99X and its own historical median of 10.06X. This elevated pricing reflects strong investor confidence in Microsoft's future growth, particularly in cloud computing and AI. However, it also raises questions about the potential limitations. Investors must carefully weigh Microsoft's market strength and growth prospects against the risks associated with its high valuation. The key consideration is whether the company's performance and potential can justify this premium pricing in the long term.
MSFT’s P/S F12M Ratio Depicts Stretched Valuation
Image Source: Zacks Investment Research
Conclusion
Microsoft's strong performance in Azure cloud and AI offerings is expected to drive substantial growth in the near term despite a premium valuation and fierce competition in the cloud market. The company's strategic focus on cloud services, AI integration and innovative product development have positioned it favorably in the competitive market. Maintaining a position in this Zacks Rank #3 (Hold) stock appears prudent at present. New investors should, however, wait for a better entry point for Microsoft.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.