Before AI shook things up, Microsoft (NASDAQ:MSFT) was often seen as an afterthought among the Magnificent Seven. However, through its groundbreaking partnership with OpenAI, MSFT is in the driver’s seat in what is expected to be a multi-year race for AI supremacy. Moreover, despite monumental AI-driven gains in MSFT stock over the past year, we’re just scratching the surface of what the technology offers.

MSFT stock has been on a tear in the past year, racking up more than 23% in gains and surging to an all-time high of $468.35. It is keeping up the pace this year too, with impressive gains of 16.2%. However, in just the past month, we’ve seen shares take a breather, dipping 2%.

Considering MSFT’s massive growth runway still in front of it, I wouldn’t be too bothered by the dip. Unlike the AI bandwagoners, MSFT is already reaping substantial benefits from AI with plenty more to come. The lower price makes it an excellent time to load up ahead of earnings.

Microsoft’s AI Moment

When Microsoft invested $1 billion in OpenAI in 2019, few could have predicted the tremendous payoff. CEO Satya Nadella’s visionary gamble turned out to be the biggest breakthrough for any tech company in recent memory. Consequently, it led to an eye-catching 46% increase in MSFT’s market cap over the past year.

Microsoft has since expanded its investment in the AI shop to roughly $13 billion. As a result, the company now has access to the industry’s most advanced AI models as it cascades the technology across its timeless software suite.

Moreover, by integrating AI into its core services such as Azure and Microsoft 365, Microsoft is already reaping many dividends. But as I said before, we’re still in the crawling stages of generative AI and its long-term implications on the economy. The walking then running stages are still to come.

Take it from Nadella, who believes AI could add an eye-popping $7 trillion to $10 trillion to the global GDP.

Importantly, MSFT’s AI success isn’t contingent on OpenAI. Nadella assured investors that MSFT’s AI-powered advancements will continue turning heads regardless of OpenAI. The tech giant has the robust infrastructure and intellectual property to continue pushing bigger and better things with the technology. Still, having OpenAI in Microsoft’s corner certainly doesn’t hurt.

Supercharged Growth: Microsoft’s AI-Driven Expansion

Microsoft’s AI advantage isn’t just theoretical. It is driving superb growth across both its top and bottom lines.

To put things in perspective, the company has emphatically beaten estimates across both lines in the past five quarters. Looking at the past 12 quarters, MSFT has beaten or met expectations 92% of the time.

What’s most encouraging is that all three of Microsoft’s operating segments are firing on all cylinders. They have delivered double-digit top-line growth over the past few quarters. In its most recent quarterly showing, MSFT delivered $61.86 billion in sales, 17% higher on a YOY basis, beating estimates by a whopping $978 million. Also, its third-quarter (Q3) EPS of $2.94 beat estimates by a comfortable 10 cents.

MSFT’s standout growth driver was its Intelligent Cloud segment, led by Azure, which showed a 21% increase in sales to $26.7 billion. During the same period, sales from Amazon Web Services (AWS), the world’s largest cloud platform, grew by 17%. AWS has long dominated the cloud computing market but has been lagging recently behind Azure’s impressive momentum. If these trends continue, we could see Azure knocking AWS from its perch.

Furthermore, MSFT’s Personal Computing segment, which includes gaming and hardware, saw a healthy 17% revenue bump due to the Activision Blizzard acquisition. The division has been MSFT’s weakest performing segment but the Activision purchase could prove massive over time. Finally, the firm posted a healthy 12% increase in its Productivity and Business Processes division, which showed a 12% jump in sales from the prior year period.

Q4 Earnings Set to Shake Things Up

MSFT stock has been a laggard in the past couple of months. It’s up just 1.5% and trailing broader-market gains of 3.73%. It needs a major boost. Fortunately, that boost could arrive within a few days when the company releases its fourth-quarter results.

Wall Street remains upbeat over MSFT’s upcoming Q4 performance, with 24 top analysts revising their EPS guidance higher over the past three months. They anticipate the company will report $2.93 in EPS, ahead of the $2.69 recorded last year. Similarly, MSFT is expected to grow revenues by 14.5% on a YOY basis, posting $64.37 billion in Q4.

Dan Ives from Wedbush Securities feels MSFT could stand out in the upcoming earnings season. He also believes that MSFT could ride the wave of positive sentiment in the tech sphere, with the sector potentially gaining another 15% to wrap up a robust first-half of 2024.

Bottomline On Microsoft Stock

MSFT has been soaring for the last couple of years, given its first-mover advantage in the AI space. Despite delivering outstanding results fueled by the technology, MSFT is just getting started and will continue turning heads with its performances. Hence, the dip in its price is an excellent time to scoop up the stock for superb gains ahead of earnings.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.