🚀Microsoft's Moment: Ready to Invest?

In partnership with

How many times have we been told that tech giants like Microsoft are untouchable, infallible even? Well, guess what? The latest earnings report just blew that myth out of the water. Microsoft isn’t just playing the game—they’re rewriting the rules, and in some cases, making up entirely new ones. With a jaw-dropping $64.7 billion in revenue for Q4 FY24, this isn’t just a quarterly update; it’s a statement. But here’s the kicker: while everyone’s busy gawking at the top-line numbers, they’re missing the real story—how Microsoft is quietly solidifying its dominance in a way that could make or break the future of tech as we know it.

In this post, I’m diving deep into what these numbers really mean, not just for the stock price, but for the very fabric of the tech world. We’re talking about cloud domination, AI integration, and a diversification strategy that has Microsoft playing chess while everyone else is stuck playing checkers. Trust me, by the end of this read, you’ll either be itching to buy more MSFT shares or kicking yourself for not having done so sooner. Let’s get into it.

Microsoft’s Earnings: A Closer Look

On July 30, 2024, Microsoft (NASDAQ: MSFT) released its earnings for the fourth quarter of fiscal year 2024, and the results were nothing short of impressive. The company reported a revenue of $64.7 billion, marking a 15% increase compared to the same period last year. This growth was largely fueled by the continued expansion of Microsoft Cloud, which saw a 21% year-over-year increase, contributing significantly to the company’s overall performance. Azure and other cloud services, a key component of Microsoft's cloud business, surged by 29%, reflecting the robust demand for cloud computing services across industries.

But it’s not just the revenue that caught my attention. Microsoft’s operating income also saw a substantial increase, reaching $27.9 billion, up 15% from the previous year. Net income rose to $22 billion, translating to earnings per share (EPS) of $2.95, a 10% year-over-year increase. This strong financial performance underscores Microsoft’s ability to effectively manage its operations and drive profitability, even as it continues to invest heavily in growth areas like AI and cloud computing.

Fundamental Strengths and Strategic Growth

When we dig deeper into Microsoft's fundamentals, we find a company that’s strategically positioned for sustained growth. Microsoft’s cloud segment, which includes Azure, Office 365, and Dynamics 365, is now the company’s largest revenue driver, accounting for nearly half of its total revenue. This shift towards cloud services is not accidental but a result of deliberate and strategic investments aimed at capitalizing on the growing demand for cloud-based solutions.

Moreover, Microsoft’s commitment to AI is evident in its continued development of AI-driven products and services. The company’s focus on integrating AI into its platforms, from Azure to Office, is not just a buzzword but a key differentiator that sets it apart from competitors. The recent surge in AI adoption across various sectors presents a massive growth opportunity for Microsoft, and the company is well-positioned to lead this charge.

Another noteworthy aspect of Microsoft’s strategy is its balanced approach to growth. While the cloud and AI are obvious growth engines, Microsoft continues to invest in its traditional businesses. For instance, the company reported a 61% increase in revenue from Xbox content and services, driven by the successful integration of Activision Blizzard’s assets. This not only strengthens Microsoft’s gaming portfolio but also highlights its ability to diversify its revenue streams.

Looking for a smart way to grow your investments? Betterment offers automated investing that helps you build wealth for the long term. With personalized advice and low fees, Betterment makes it easier to achieve your financial goals. Whether you're saving for retirement or just looking to diversify your portfolio, Betterment can help you make the most of your money. Start investing smarter today!

We put your money to work

Betterment’s financial experts and automated investing technology are working behind the scenes to make your money hustle while you do whatever you want.

Learn more

Stock Performance: A Reflection of Market Sentiment

Let’s talk about Microsoft’s stock performance after their latest earnings release on July 30, 2024. You’d think a company posting a 15% year-over-year revenue increase would send its stock skyrocketing, right? Well, that’s not exactly what happened. On the day following the earnings announcement, MSFT stock saw a slight drop, closing at $418.35 on July 31, down 1.08% from the previous day. Investors were cautiously optimistic, but the market’s initial reaction was more muted than anticipated.

But let’s dig deeper into what happened over the past month. From July 1 till August 2, 2024, Microsoft’s stock had quite the ride. The stock reached a peak of $468.52 on July 5, before slipping back down to $408.49 by August 2. That’s an 12.63% decline in just under a month. The stock’s performance was reflective of broader market volatility, particularly in the tech sector, where concerns about AI valuations and macroeconomic factors like interest rate hikes created uncertainty.

Even with this dip, Microsoft’s stock is still up by about 10.14% year-to-date, showing its resilience in a tough market. However, the 12.63% drop in the past month is a reminder that even the most solid companies aren’t immune to market swings. The post-earnings performance and the movement throughout July indicate that investors are trying to balance optimism about Microsoft's long-term AI and cloud strategies with short-term concerns about overvaluation and broader economic pressures.

Valuation: A Premium Worth Paying?

As of August 2024, Microsoft’s price-to-book (P/B) ratio stands at 11.3. This is slightly above its 5-year average P/B ratio of around 10.5, indicating that the stock is currently trading at a premium relative to its historical valuations. This elevated P/B ratio reflects strong market confidence in Microsoft's growth prospects, particularly in cloud computing and AI. However, investors should consider whether this premium valuation is sustainable, especially given recent market volatility and broader economic concerns.

Conclusion: A Strong Buy for the Long-Term Investor

Microsoft’s latest earnings report reaffirms the company’s position as a tech powerhouse with multiple growth levers. Its strategic focus on cloud and AI, coupled with solid fundamentals and strong financial performance, makes it a compelling investment for long-term investors. While the stock may seem expensive at first glance, the growth potential and strategic direction of the company justify its current valuation. If you’re looking for a stock that combines stability with growth, Microsoft should definitely be on your radar.

Investors who understand the value of long-term growth and technological innovation will likely find Microsoft’s stock to be a rewarding addition to their portfolios. As always, it’s essential to keep an eye on the market dynamics and Microsoft’s quarterly updates to ensure that the investment thesis remains intact.

Final Thought: As Microsoft continues to shape the future of technology, are you ready to invest in a company that’s not just part of the tech landscape but is actively redefining it? Your decision today could define your financial success in the coming years.

Found these insights valuable? Elevate your investing game by subscribing to our blog for more in-depth analysis, strategies, and market trends. Stay ahead with expert tips and refine your portfolio. Share this post with friends interested in the stock market and let's build a smarter investing community together!

Disclaimer: The content on this blog is for educational and informational purposes only and is not intended as financial, investment, tax, or legal advice. Investing in the stock market involves risks, including the loss of principal. The views expressed here are solely those of the author and do not represent any company or organization. Readers should conduct their own research and due diligence before making any financial decisions. The author and publisher are not responsible for any losses or damages resulting from the use of this information.