Big tech continues to surprise, as Microsoft (NASDAQ:) stock was soaring after the company beat its fiscal third quarter earnings estimates. It was an impressive quarter for the tech giant, and its robust growth outlook sparked a rally that saw the stock rise 9% to over $430 per share.
Microsoft generated $70.1 billion in revenue in the quarter, a 13% jump year-over-year. That blew away estimates of $68.4 billion.
Net income rose 18% to $25.8 billion, or $3.46 per share, in the quarter. That topped analysts’ estimates of $3.22 per share.
Microsoft’s cloud computing and AI businesses continue to drive earnings gains. In the quarter, the Intelligent Cloud business generated $26.8 billion in revenue, up 21% year over year.
With the cloud business, Azure, the company’s AI platform, saw its revenue soar 33% year-over-year while its server products and cloud services revenue rose 22%. Commercial bookings increased 18% in the quarter, driven by Azure.
The company saw accelerating demand in cloud migrations to Azure, adding customers across industries, including Abercrombie & Fitch, Coca-Cola (NYSE:), and ServiceNow (NYSE:).
“We continue to see strong demand for our cloud and AI offerings as they help customers drive productivity, increase efficiencies, and grow their businesses,” Amy Hood, chief financial officer at Microsoft said on the earnings call. “And, again this quarter, revenue from our AI business was above expectations.”
Gains Across the Board
While the cloud segment drove the bus, Microsoft’s other businesses performed well, too. Productivity and Business Processes revenue surged 10% higher to $29.9 billion. Within this unit, Microsoft 365 Commercial products and cloud services revenue increased 11%, while Microsoft 365 Consumer products and cloud services revenue increased 10%.
Further, Dynamics products and cloud services revenue rose 11%, driven by Dynamics 365 revenue growth of 16%. Even LinkedIn had a solid quarter, with revenue up 7% year-over-year.
Also, revenue in the More Personal Computing segment jumped 6% to $13.4 billion. Search and news advertising revenue climbed 21% while Xbox content and services revenue increased 8% compared to the same period a year ago. In addition, Windows OEM and Devices revenue increased 3%.
Analysts Are Bullish
Microsoft stock got a slew of analyst upgrades, post-earnings, as they were mostly bullish on its outlook. Among them, RBC capital boosted its price target by $25 to $525 per share.
Microsoft issued guidance calling for the Intelligent Cloud business to generate between $28.75 billion to $29.05 billion in the fiscal fourth quarter ended June 30. That would be up 7% to 8% from the previous quarter. Within that, the company is targeting 34% to 35% growth in Azure, which would be higher than Q3.
Microsoft is also expanding its data center capacity, opening 10 centers this quarter already on four continents. In fact, said Hood, demand is growing faster than expected.
“In our AI services, while we continue to bring datacenter capacity online as planned, demand is growing a bit faster. Therefore, we now expect to have some AI capacity constraints beyond June,” she said.
As a result, the company plans to increase its capital expenditures in Q4.
Microsoft stock has a median price target of $490 per share, which indicates a return of about 14% over the next year. Microsoft should be less impacted by potential tariffs than other big tech firms as most of its offering are cloud and software based, with limited exposure to hardware-based products.
Its P/E is reasonable fort such a high growth company, so based on its outlook, and the projections of analysts, it looks like a stock to put on your radar.
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