Tech giant Microsoft (NASDAQ:MSFT) reported revenue ahead of Wall Street’s expectations in Q4 CY2024, with sales up 12.3% year on year to $69.63 billion. Its GAAP profit of $3.23 per share was 4% above analysts’ consensus estimates.

Is now the time to buy Microsoft? Find out by accessing our full research report, it’s free.

Key Topics & Areas Of Debate

AI is probably the hottest topic in the world of investing today, and the debate for Microsoft is simple. How big is the AI benefit, when will we see it flow into revenue, and how much will it cost from an operating expense and capital expenditure perspective?

Customers who pay for Microsoft's products and services to enable their own GenAI goals will likely be buying infrastructure, developer tools, and data analytics platforms. Azure sits at the center of Microsoft’s AI ambitions, and it allows enterprise customers to do everything from accessing large language models (LLMs) to analyzing large volumes of data in real-time.

Aside from Azure, Copilot is a suite of AI-powered integrations into various Microsoft products to enhance productivity and streamline tasks. Microsoft 365 Copilot automates writing in Word, modeling in Excel, and email management in Outlook while GitHub Copilot, developed via a collaboration with OpenAI, automates code completion.

Despite its scale, Microsoft doesn’t operate in a vacuum. Alphabet (NASDAQ:GOOGL) competes against Azure with Google Cloud Platform and in productivity tools with G Suite and Google Workspace. Apple’s (NASDAQ:AAPL) macOS operating system also goes head to head against Microsoft’s Windows, and its iPhone and iPad products have been a thorn in its side. Lastly, IBM (NYSE:IBM), Oracle (NYSE:ORCL), SAP (XTRA:SAP), and many others compete with at least some subset of Microsoft’s product portfolio.

Revenue Growth

Microsoft shows that fast growth and massive scale can coexist despite the conventional wisdom about the law of large numbers. The company’s revenue base of $134.2 billion five years ago has nearly doubled to $261.8 billion in the last year, translating into an exceptional 14.3% annualized growth rate.

Microsoft’s growth over the same period was also higher than its big tech peers, Amazon (18.5%), Alphabet (17%), and Apple (8.5%). Comparing the four is relevant because investors often pit them against each other to derive their valuations. With these benchmarks in mind, we think Microsoft is a bit expensive (but still worth owning).

We at StockStory emphasize long-term growth, but for big tech companies, a half-decade historical view may miss emerging trends in AI. Microsoft’s annualized revenue growth of 13.3% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.

This quarter, Microsoft reported year-on-year revenue growth of 12.3%, and its $69.63 billion of revenue exceeded Wall Street’s estimates by 1.1%. Looking ahead, sell-side analysts expect revenue to grow 13.5% over the next 12 months, similar to its two-year rate. This projection is admirable for a company of its scale and illustrates the market sees some success for its newer AI-enabling products.

Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) stock benefiting from the rise of AI. Click here to access our free report one of our favorites growth stories.

Intelligent Cloud: Azure & Cloud Computing

The most pressing question about Microsoft’s business is how much AI can boost its revenues. The company's cloud computing division, Intelligent Cloud, is one we watch carefully because its Azure platform and server/database offerings could be the biggest beneficiaries of the AI megatrend.

Intelligent Cloud is 36.5% of Microsoft’s total sales and grew at a 16.9% annualized rate over the last five years, faster than its consolidated revenues. The previous two years saw deceleration as it grew by 13.2% annually.

Intelligent Cloud’s 18.7% year-on-year revenue growth met expectations in Q4.

In terms of market share, Azure is a close second as its run-rate revenue (current quarter’s sales times four) is around $80 billion versus roughly $100 billion and $45 billion for AWS and Google Cloud. If Azure wants to catch up to AWS in the coming years, growth will have to accelerate beyond its current levels.

Key Takeaways from Microsoft’s Q4 Results

Investor sentiment has recently soured a bit around capex, the GenAI impact on topline, and the OpenAI relationship. It was therefore encouraging to see Microsoft narrowly top analysts’ revenue expectations this quarter, as Personal Computing and Business Services beat while Intelligent Cloud was in line. Within Intelligent Cloud, the all-important Azure constant-currency revenue growth came in at 31%, missing investor expectations of 32-33%. Overall, we think this was a decent quarter but not enough to appease some of the market's concerns. The stock traded down 3.8% to $424.89 immediately following the results.

Is Microsoft an attractive investment opportunity right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.