Microsoft Corporation (NASDAQ:MSFT) shares are sitting right around an all-time high, with a 31% gain on the books over the last 12 months, MSFT stock has climbed 19% this year alone.
What’s fueling the gains? MSFT has posted four straight earnings beats, including the one announced on July 20. The company earned 98 cents a share in the most recent quarter against expectations of just 71 cents per share. That monster beat was thanks in part to a $2 million tax write-down from its failed phone business.
But there was plenty of other good news in the report, too.
Redmond, Wash.-based Microsoft posted $25 billion in revenue for the quarter — a 10% year-over-year gain and $1 billion more than Wall Street was expecting. And those strong numbers serve as proof that Microsoft has slowly but surely been successful at making the necessary shifts to stay relevant in the tech world.
Slice of the Pie
Microsoft’s cloud division is perhaps the most obvious proof point. Here’s how CEO Satya Nadella put it in the earnings release:
“Innovation across our cloud platforms drove strong results this quarter. Customers are looking to Microsoft and our thriving partner ecosystem to accelerate their own digital transformations and to unlock new opportunity in this era of intelligent cloud and intelligent edge.”
More specifically, revenue in Intelligent Cloud was $7.4 billion and increased 11% year-over-year, while server products and cloud services revenue increased 15%. Azure revenue growth specifically nearly doubled, and Azure is now the second-biggest cloud business, trailing only Amazon.com, Inc. (NASDAQ:AMZN).
Microsoft also had the “highest number of multimillion-dollar Azure deals to date during the quarter,” CFO Amy Hood noted on the company’s post-earnings conference call. And for the first time ever, Microsoft sold more commercial versions of Office than the traditional version.
This is all great news for MSFT stock and suggests gains will continue.
Microsoft doesn’t have to beat Amazon to continue growing. Instead, it merely has to hold onto its slice of the pie and let the pie grow. MSFT has a favorable mega-trend at its back now that it’s transitioned to cloud and subscription services, and management’s proven it can grow market share and adapt to trends as needed.
That’s very promising, especially for an established tech company.
Bottomline for MSFT Stock
Looking forward, 8% growth is expected on the top line for Microsoft along with just shy of double-digit growth on the bottom line. Tack on a dividend yield north of 2% despite the climb and there’s a lot to like, to say the least. Just last month, Cleveland Research initiated a “buy” ranking on the stock.
Dig deeper into the balance sheet, and I also like Microsoft’s $129 billion in cash versus $86 billion in debt. Plus, its profit and operating margins are both right about 25%.
Add it up, and the result is that Microsoft is a leader in the cloud and in tech, and MSFT stock will continue to be a favorite on Wall Street. It doesn’t necessarily have to be the king of the cloud to be successful, but it’s not far off from that title anyway.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
