Microsoft’s (NASDAQ:MSFT) stock deserves more love from Wall Street, especially after the company reported strong first-quarter financial results. Microsoft delivered a strong print and its share price has not responded. In fact, since it released its Q1 earnings on April 25, its stock has dipped 3%.
The pullback doesn’t reflect Microsoft’s current strength or long-term growth prospects. The current situation allows investors to buy the dip in MSFT stock, as its price has fallen 7% in April.
Another Strong Quarter for MSFT Stock
Microsoft beat Wall Street expectations across the board with its latest numbers. Boosted by Azure’s rapid growth, the company reported earnings per share of $2.94, surpassing the expected $2.82.
Revenue totaled $61.86 billion compared to $60.80 billion that was forecast. Q1 sales increased by 17% YoY. The Intelligent Cloud segment, including Azure public cloud, earned $26.71 billion, up 21% YoY.
Revenue from Azure and other cloud services grew 31%. Analysts had expected growth of 28.6%. Within Azure, seven percentage points of the growth was related to AI, up from six percentage points of impact in the previous fourth quarter of 2023.
Other Q1 highlights included revenue from the Xbox video game unit rising 62% year over year due to a lift from the $68 billion acquisition of Activision Blizzard, which makes popular game titles such as “Call of Duty.” Sales of Windows licenses to device makers rose 11% in Q1.
In term of guidance, Microsoft said that it expects $64 billion in revenue for the current second quarter of the year, slightly below the $64.5 billion consensus estimate of analysts. Perhaps the guidance has led to the tepid response by investors.
But the outlook shouldn’t take away from what was, by nearly every metric, a slam dunk quarter from Microsoft.
Cloud and AI Growth
During Q1, Microsoft introduced Surface computers with a key for quickly accessing its Copilot AI chatbot. The company has begun selling access to the Copilot chatbot for small businesses with Microsoft 365 productivity software subscriptions.
This is one of the latest efforts by Microsoft to monetize its AI offerings. Earlier in April, Microsoft teased new AI tools for use with its Windows operating system and cloud computing infrastructure. More AI products and news are expected at the company’s Build conference May 21-23.
The Azure cloud segment is already growing quickly. But Microsoft plans to boost that growth by adding more AI features to its Azure public cloud.
At the upcoming Build conference, Microsoft reportedly plans to introduce new features related to AI cloud safety, which will aim to lower the likelihood of chatbots posing security risks to users.
Today, Microsoft is the world’s second largest cloud computing company with a 24% share of the global market.
Buy Microsoft Stock
Currently, 35 professional analysts who cover Microsoft rate the stock a “strong buy” with a median price target that is nearly 25% higher than where the shares currently trade.
The post-earnings dip presents investors with an opportunity to buy a best in class technology stock at a reasonable price. With its leadership in AI, growth in cloud-computing, and ability to consistently beat earnings forecasts, Microsoft stock is a buy.
On the date of publication, Joel Baglole held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
