After the market closes on Thursday, Microsoft (NASDAQ:MSFT) will release its fourth-quarter earnings results. And for the most part, Wall Street is upbeat. In fact, during the past week, MSFT stock has logged a return of about 4.5%.

So what’s the consensus on Microsoft earnings? Well, revenues are expected to jump 18.3% to $29.2 billion and earnings to come to $1.08-per-share. Yet it seems that Microsoft earnings will likely beat, as has been the habit for the company for some time. Keep in mind that management tends to take a conservative approach to its forecasts.

As for what analysts will be drilling down on, there are some key themes. First, there is the outlook for the PC market, which remains an important part of the story for Microsoft earnings.

The good news is that it looks like the PC market is gaining momentum. According to Gartner, the shipments of PCs during the Q2 were the strongest they’ve been in six years. The main driver was a growth in demand from business customers.

But Microsoft has generally been able to gin up growth from its PC business even when the overall market has declined. For example, there has been strength in Windows 10 upgrades because of the concerns with high-profile cyberattacks. During fiscal Q3 (last quarter), sales rose by 11%.

The Cloud and Microsoft Earnings

Of course, when it comes to Microsoft earnings, analysts will be mostly focused on the cloud business. And there are few signs of weakness. The company is likely to continue to see robust growth from Azure, which is its web hosting platform (in the latest quarter, revenues spiked by a sizzling 93%).

While Amazon.com (Nasdaq:AMZN) and Google (NASDAQ:GOOGL) remain tough competitors in the cloud market, Microsoft still has some key advantages. There is the Office 365 franchise, which is a critical piece of corporations across the world. And Microsoft also has LinkedIn — the world’s largest professional network.

Even the often-ignored Dynamics 365 system is showing signs of life. While salesforce.com (NASDAQ:CRM) still dominates the CRM (Customer Relationship Management) market, customers are still interested in alternatives.

There are some other notable events that analysts will likely take note of during the Microsoft earnings call:

• Walmart (NYSE:WMT) signed an agreement to use Microsoft’s cloud platform, such as for deep learning and AI (Artificial Intelligence) functions. The deal has a term of five years.
• Microsoft shelled out a whopping $7.5 billion for GitHub, which is the largest repository of computer code. There are about 28 million users. No doubt, this base could ultimately start to transition over to Microsoft cloud services. Chris Wanstrath, the co-founder of GitHub, wrote this in a blog: “When GitHub first launched ten years ago, I could have never imagined this headline. Git was a powerful but niche tool, clouds were just things in the sky, and Microsoft was a very different company…Now, of course, things are different. Git is far and away the most popular version control system, clouds are mostly computers, and Microsoft is the most active organization on GitHub in the world.”

Bottom Line On Microsoft Earnings

It’s true that Microsoft stock is far from cheap, with the forward price-to-earnings multiple at 26x. The dividend is also at a measly 1.65%.

But I still think there is upside. The cloud market is a secular trend and Microsoft is well positioned to be a long-term winner. It is also encouraging that CEO Satya Nadella has been willing to make bold actions, such as with acquisitions. And yes, Microsoft should continue to crank out huge amounts of cash flows.

So in light of all these key factors, it’s certainly reasonable for Microsoft stock trade at a premium.

Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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