Microsoft had a solid quarter, however the stock price opened lower on Wednesday for one major reason.
Microsoft (NASDAQ:MSFT) stock was trending down roughly 2% Wednesday despite beating revenue and earnings estimates for Q2 2024.
The tech firm generated $64.7 billion in revenue within the quarter, up 15% year-over-year and beating estimates of $64.4 billion. Further, it made $22 billion in net income, or $2.95 per share, up 10% year-over-year and topping estimates of $2.94 per share.
Microsoft stock is up about 12% YTD, but shares were heading lower by about 2% in early trading on Wednesday.
High expectations for AI
The highest and bottom-line numbers for Microsoft were typically solid, but investors saw some concerns inside those results. The foremost issue was its AI-driven intelligent cloud business. Microsoft has thrived on its leadership in artificial intelligence to realize market share in its cloud computing business.
Nevertheless, it could have created too high of an expectation around its Intelligent Cloud business within the fiscal fourth quarter. The segment, which incorporates its Azure gen AI platform, saw revenue increase 19% year-over-year to $28.5 billion. This was driven by Azure, where revenue jumped 29%.
These are impressive numbers, but analysts had expected more. Specifically, they targeted $28.7 billion in Intelligent Cloud revenue and a 31% increase in revenue from Azure. While demand for its AI services remained high, the corporate was barely hampered by capability constraints within the quarter, thus the marginally lower-than-anticipated results.
“We now have over 60,000 Azure AI customers, up nearly 60% year-over-year, and average spend per customer continues to grow,” Satya Nadella, chairman and CEO at Microsoft, said on the decision with analysts.
The variety of Azure AI customers also using data and analytics tools grew nearly 50% year-over-year, she added.
Outlook for fiscal 2025
The opposite reason the stock price could have dipped barely was its outlook for Q1. The guidance called for $28.6 billion to $28.9 billion in Intelligent Cloud revenue, up from $28.5 billion last quarter. Inside this, Azure is projected to see a 28% to 29% revenue increase.
Nevertheless, revenue for Productivity and Business processes was expected to be flat or up barely, while revenue from More Personal Computing is anticipated to diminish quarter over quarter.
As for the total yr fiscal 2025 outlook, Microsoft expects double-digit revenue growth, higher capital expenditures, single-digit growth in operating expenses, and double-digit growth in operating income, with the operating margin down 1%.
Microsoft CFO Amy Hood said the corporate anticipates AI demand to proceed to be impacted by capability constraints in the primary half of fiscal 2025.
“In H2, we expect Azure growth to speed up as our capital investments create a rise in available AI capability to serve more of the growing demand.”
Is Microsoft still a buy?
Generally speaking, any time there’s a dip in Microsoft stock, investors should consider it a buying opportunity. Wednesday’s results aren’t much of a long-term concern as Microsoft continues to transition to an AI-driven Intelligent Cloud.
Some analysts lowered Microsoft’s price goal post-earnings, including UBS, Citigroup, Morgan Stanley and DA Davidson, but it surely stays a buy across the board with a median price goal of $489 per share, up 17% from the present price.
12 months-to-date, Microsoft is up about 12%.
Microsoft’s valuation is already fairly reasonable with a P/E of 35 and a forward P/E of 31, but any likelihood to get this Magnificent Seven eternally stock at a rather lower cost and valuation is one.