Earlier this year, Microsoft (NASDAQ:MSFT) gained widespread recognition for its investment in generative artificial intelligence chatbot developer OpenAI. More recently, however, Microsoft was put to the test with a closely watched earnings event. The company passed the test with flying colors and MSFT stock now could end 2023 with a rally.
Of course, there are no guarantees that Microsoft shares will gain value during the fourth quarter. Still, the risk-to-reward balance looks favorable as Microsoft’s results remind investors that the company is still a leader in multiple technology fields.
MSFT Stock Perks Up After Earnings Release
Not long ago, Microsoft released its financial results for the July-through-September quarter. This was one of the most highly anticipated events of the earnings cycle.
Bear in mind, MSFT stock had stalled out for several months after rallying in the first half of 2023. While the earnings event didn’t spur an immediate, massive buying frenzy, it could spark a long-term bull run and give Microsoft’s shareholders a boost of confidence.
Here’s what happened. On a year-over-year basis, Microsoft’s quarterly revenue grew 13% to $56.52 billion, beating Wall Street’s call for $54.52 billion. Meanwhile, Microsoft reported net income of $2.99 per share, surpassing the analysts’ consensus estimate of $2.65 per share.
AI didn’t take center stage in the quarterly results. Jesse Cohen, senior analyst at Investing.com, read between the lines in the earnings report.
“The results indicated that artificial intelligence products are stimulating sales and already contributing to top and bottom-line growth,” Cohen posited.
CEO Satya Nadella assured Microsoft is “rapidly infusing AI across every layer of the tech stack” in order to drive productivity gains for customers. Microsoft is still an AI-tech leader in 2023’s fourth quarter.
Microsoft Shows Its Cloud Clout
Above all else, Microsoft’s quarterly results demonstrated the company’s powerful position in the cloud computing market. Specifically, quarterly revenue for Microsoft’s cloud-focused business segment (known as Intelligent Cloud) grew 19% year over year to $24.26 billion.
This result beat Microsoft’s previous guidance range $23.3 billion to $23.6 billion. Particularly notable was the 21% year-over-year increase in Microsoft’s server products and cloud services revenue.
Microsoft’s quarter wasn’t perfect in every way. Jeremy Goldman of research firm Insider Intelligence pointed out, “There are some weaker areas; search advertising revenues, for one, is growing slower than most segments.”
So, investors shouldn’t be so bullish on MSFT stock they lose sight of Microsoft’s near-term challenges and obstacles.
MSFT Stock May Be Worthy of a Small Allocation
Microsoft still has room to improve in certain areas. Investors should recognize Microsoft’s growth and achievements in the areas of cloud computing and AI technology development.
When all is said and done, investors don’t need to go overboard even if they’re bullish about Microsoft’s prospects for the coming quarters. It’s fine to consider a small portfolio allocation in MSFT stock. Just keep in mind that the Microsoft share price might not rally sharply in the near term, but there’s still good growth potential for the long haul.
— Louis Navellier and the Investor Place Research Staff
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Source: Investor Place