Microsoft Stock Forecast After Q4 Earnings

Tech giant Microsoft recently closed its fiscal year 2024 with its fourth-quarter earnings report. It's remarkable that the world's second-largest company by market cap, a behemoth with over $200 billion in annual revenue, can still grow as it does. Microsoft's Q4 earnings topped Wall Street's expectations in both revenue and profits, yet the stock sold off somewhat on the news.

Are there signs of trouble buried in the fine print of Microsoft's quarter? This Fool analyzed earnings to find out what went right, what went wrong, and whether the stock is buyable today.

Microsoft's Ubiquity and Unyielding Growth

Microsoft's influence on global technology is unmistakable, as evidenced by a recent IT outage that halted millions of computers worldwide, impacting airlines, banks, and various other services. Microsoft's presence is felt across numerous sectors, with its software powering both personal and enterprise computer systems, and Azure serving as a critical foundation for the internet. Additionally, the company owns leading gaming brands, the professional networking site LinkedIn, and more.

Despite its vast diversification, Microsoft continues to demonstrate robust growth across its divisions. Commercial Office 365 software sales increased by 12% year over year, while personal 365 subscriptions rose to 82.5 million from 80.8 million just three months prior. LinkedIn revenue grew by 10% year over year, and Azure, along with other cloud services, saw a 29% revenue increase, bolstered by advancements in artificial intelligence (AI). Even Windows, a stalwart since the 1980s, posted a 7% increase in sales. Overall, Microsoft's Q4 revenue surged by 15% year over year to $64.7 billion, with earnings per share climbing 10% to $2.95. The ability of such a large, complex company to achieve double-digit growth across nearly all business segments is truly impressive.

Navigating Azure's AI Demand Surge

One minor shortfall was Azure's 29% growth, which slightly missed the management's target of 30% to 31% from the previous quarter. While this perceived miss led to a modest stock sell-off, the overall impact was minimal. Importantly, the Q4 earnings call provided crucial context, highlighting that Azure AI is facing capacity constraints due to high demand. AI alone contributed eight percentage points to Azure's growth. The Azure AI customer base expanded to over 60,000 in Q4, marking a 60% increase from the previous year, with customer spending also on the rise. Microsoft invested $19 billion in capital expenditures in Q4, nearly all of which was allocated to cloud and AI. Management has projected even higher spending in 2025 to meet the robust demand for AI.

Strong Financial Growth and Promising Outlook for FY2025

Microsoft's recent financial performance has shown strong growth, particularly in the fourth quarter of FY2024. The revenue for this quarter reached $64.73 billion, marking a 15% increase year-over-year (y-o-y). Net income for the same period was $22 billion, representing a 10% y-o-y growth. Breaking down the segment performance, Productivity & Business Processes experienced an 11% y-o-y rise, Intelligent Cloud saw a significant 19% y-o-y increase driven by a 29% boost in Azure and other cloud services, and More Personal Computing grew by 14% y-o-y.

For the full FY2024, total revenue was $245.1 billion, up 16% y-o-y, and net income amounted to $88.13 billion, a 22% increase y-o-y. Additionally, operating income grew by 24% y-o-y.

Looking ahead to FY2025, the company projects revenue to reach $280 billion and net income to be approximately $98.6 billion. The annual GAAP EPS is projected at $13.28.

Conclusion

Microsoft's remarkable financial performance and strategic foresight underscore its pivotal role in the global technology landscape. The company's ability to achieve significant growth across diverse segments, from cloud services and AI to traditional software and social networking, highlights its resilience and adaptability. Despite facing minor challenges, such as meeting the burgeoning demand for Azure AI, Microsoft's proactive investments and robust infrastructure position it well for continued success. As the company looks ahead to FY2025 with ambitious projections, its commitment to innovation and expansion ensures it remains at the forefront of technological advancement, driving value for both its customers and investors.