Against the backdrop of a tech market that has been absolutely slaughtered over the past several weeks, cloud giant Microsoft (NASDAQ:MSFT) reported robust first-quarter numbers, which underscored one very important thing: the secular growth narratives underpinning the bull market in tech stocks aren’t dead yet. Instead, they are still robust.

Microsoft stock jumped 5% higher in response to a double-beat first-quarter report that showed off continued robust cloud growth. Cloud has been one of the biggest secular growth narratives underpinning the bull market in tech stocks. Thus, so long as this narrative remains robust, MSFT and other cloud tech stocks should remain winners.

Does that mean it is time to buy Microsoft stock? Perhaps. Momentum is back on its side. Long-term fundamentals are strong. Sentiment is improving. The only thing that concerns me here is near-to-medium-term valuation friction in a rising-rate environment.

But, relative to hyper-growth cloud peers, MSFT is about as cheap as it gets. Thus, this company should run into less valuation friction as its peers, yet still reap the rewards out-sized cloud market growth.

In the big picture, strong third-quarter numbers underscore that Microsoft is a long-term winner. There may be some near to medium-term valuation friction, but that will ultimately prove to be nothing more than noise in a long-term window.

Microsoft Stock’s Quarter Affirms Improving Growth Trends

The big takeaway from Microsoft’s first-quarter earnings report is that the rapidly growing cloud business remains on fire, and continues to improve Microsoft’s overall growth trajectory.

At the start of fiscal 2016, revenues at Microsoft were declining. By the beginning of fiscal 2017, revenues were growing by 2%-3%. At the start of fiscal 2018, revenue growth was in the 10%-plus range. Now, at the start of fiscal 2019, revenue growth is nearing 20%.

That is a very impressive upward trajectory in revenue growth, and it is all because of Microsoft’s cloud revolution. Microsoft’s cloud businesses have bigger growth rates than its legacy businesses. As those cloud businesses scale, they become a bigger and bigger driver of revenue growth. As that happens, overall revenue growth at Microsoft starts to look more and more like cloud revenue growth.

Microsoft’s cloud businesses are largely growing in the 20%-plus range, with some hyper-growth subsets like Office 365 (36%), Dynamics 365 (49%), and Azure (76%). Thus, as these cloud businesses have become a larger and larger piece of the Microsoft revenue pie, Microsoft’s revenue growth rates have inched towards 20%. This dynamic should persist so long as the cloud businesses continue to grow.

Meanwhile, margins are improving because robust revenue growth is driving significant opex leverage while gross margins across the still-rapidly-growing cloud businesses are improving with scale. This dynamic should persist, too, so long as the cloud businesses continue to grow.

Thus, at the end of the day, the Microsoft stock growth narrative is all about the cloud. So long as the cloud businesses continue to grow, Microsoft’s revenue growth and margin profile will continue to be robust. So long as that’s true, MSFT will be a winner.

MSFT Has Long-Term Upside

The cloud growth narrative is long-term in nature. Enterprises and consumers are rapidly moving workloads and data from on-site to the cloud. This shift is still relatively young, and as the world becomes more digitally connected than ever (think IoT and AI), the world also become plugged into the cloud more than ever. Inevitably, then, secular growth trends imply a bright future for Microsoft’s cloud businesses.

Because of this, MSFT stock is positioned as a long-term winner. Total revenue growth rates are nearing overall cloud growth rates, so the tailwind from improving growth rates as cloud comprises a bigger portion of the revenue pie is largely in the rear-view mirror. Plus, cloud growth rates are slowing, especially in the hyper-growth segments like Office 365, Dynamics 365, and Azure.

But, cloud growth rates remain robust and largely above 20%. Thus, even if those slow over the next several years, Microsoft stock should still be able to grow revenues at a 10%-plus clip. Alongside double-digit revenue growth, margins should expand due to improved gross margin profiles for the cloud businesses and opex leverage. All together, 10%-plus revenue growth and healthy margin expansion should drive EPS to roughly $7 in five years.

Throw a growth-average 20X forward multiple on that. You arrive at a fiscal 2022 price target of $140. That represents nice upside in a long-term window. But, if you discount that $140 price tag back by 10% per year, you arrive at a fiscal 2019 price target of $105. MSFT is above that today. Thus, you could get some near to medium term valuation friction at current levels.

In the big picture, though, such near-to-medium-term valuation friction will largely amount to nothing more than noise. Investors are willing to pay a premium for Microsoft because of its growth exposure, long-term stability, and overall financial health. So long as this company maintains those three attractive features, MSFT stock will ultimately head higher and reward shareholders.

Bottom Line on MSFT Stock

Strong third-quarter numbers underscore that Microsoft stock is a long-term winner. While the stock might face some near-to-medium-term valuation friction as it approaches $110, this friction will ultimately amount to nothing more than noise in the big picture. In that big picture, within the next five years, MSFT stock should provide nice and stable returns to shareholders.

As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.