Microsoft Corporation (NASDAQ:MSFT) shares are rising in Thursday’s after-hours trading after what looks like a solid fiscal fourth-quarter report. Microsoft earnings did benefit from a negative tax rate in the quarter, but the company still landed a wide beat on an adjusted basis, and as a result, MSFT stock is up more than 1% after the bell.

In the near term, I wouldn’t be surprised to see shares climb higher. Cloud strength — notably in Azure — will drive the post-earnings headlines.

But Microsoft earnings also show some of the challenges facing MSFT stock — and some of the reasons why I still believe the stock is overvalued.

Microsoft’s Q4 Earnings

On a headline basis, Microsoft doled out a blowout quarter. Adjusted earnings of 98 cents per share swamped consensus estimates of 71 cents and came in 42% higher year-over-year. Revenue of $24.7 billion was roughly $430 million ahead of the Street, with 9%-plus growth about a point and a half better than expected.

It’s important to note, however, that Microsoft earnings were inflated by one-time tax help. Microsoft actually paid a negative tax rate in the quarter, thanks to the utilization of $1.8 billion in tax benefits. Excluding the 23-cent tax boost, earnings of 75 cents still would’ve come in ahead of estimates, but would represent just a 9% improvement year-over-year.

Q4 might not have been as strong as the reported EPS number makes it look. But make no mistake, it’s a solid quarter for Microsoft.

Notably, Azure revenue grew 97% year-over-year in the quarter, an acceleration from the 93% posted in Q3. With Microsoft competing with Amazon.com, Inc. (NASDAQ:AMZN) is cloud, that figure surely will garner investor attention.

Office revenue grew 5% in commercial, and 13% in consumer. Intelligent Cloud sales rose 11%, led by Azure, with margins actually expanding in that segment — after a compression last quarter. That seems to imply that Microsoft is starting to leverage the fixed-cost investments made in that business. And despite lower revenue in More Personal Computing — driven by lower phone sales — operating income grew a whopping 68%, with expenses down and gross margin up. Even the much-maligned Search business got in the act.

Revenue ex-traffic acquisition costs rose 10%, with higher volume.

All told, Microsoft earnings were basically everything an MSFT stock bull could want. Azure growth? Check. Earnings beat? Check. Broad-based strength? Check check.

In fact, from here, it’s surprising the stock hasn’t posted bigger gains.

Long-Term Concerns Toward MSFT Stock

As strong as the quarter was, Microsoft still has some work to do.

The valuation of Microsoft stock is starting to get a bit stretched, with the stock now at about 22x FY17 earnings (excluding the Q4 tax benefit) plus net cash. That’s after a strong year — but a year where adjusted net income still grew only less than 8% YOY.

And concerns remain:

• Azure remains in second place.
• Much of the talked-about growth in so-called Commercial Cloud comes from Azure: Enterprise Services revenue actually declined year-over-year in Q4.
• Office 365 commercial revenue was up 43% — but total Office commercial sales grew just 5%, with most of the 365 growth simply cannibalizing sales of the disk-based version.
• LinkedIn revenue was $1.1 billion — and expenses were $1 billion, implying limited profit contribution.
• And Windows OEM revenue — still the core profit driver here — increased just 1%.

Even after a strong report, MSFT stock still looks reasonably expensive for the growth it’s capable of driving. And it hasn’t completely answered some of the longer-term concerns.

Q4 was a step in the right direction, admittedly … but still just a step.

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