Microsoft delivered a strong quarter Wednesday evening, with beats nearly across the board. The biggest standout was Azure’s accelerating revenue growth, which caught the market by surprise. Revenue increased 13% year over year to about $70 billion in its fiscal 2025 third quarter, beating the Street consensus estimate of $68.4 billion, according to data from LSEG. Earnings per share increased 17% from last year to $3.46, ahead of EPS estimates of $3.22, LSEG data showed. MSFT YTD mountain Microsoft YTD The strong results combined with stronger revenue guidance for the current quarter sent shares up nearly 7% in after-hours trading. We’re reiterating our 2 rating and maintain our $500 price target. Bottom line Microsoft is back on track. The consensus view here has been that Microsoft was somewhat lost in its artificial intelligence strategy after disappointing three months ago in fiscal Q2. Adding to the confusion was that a somewhat frayed relationship with OpenAI – or at least the perception of one — could leave Microsoft vulnerable to falling behind in the AI race. However, the software giant posted better-than-expected revenue across all three main businesses and expanded its operating margins by about 110 basis points year over year. In addition, several media and press reports suggested Microsoft was pulling back its data center commitments and canceling leases, which some took as a sign that demand was falling off a cliff. As it turned out, though, the opposite happened. The company silenced the bears by delivering accelerating revenue growth at Azure, its cloud computing business. To top it off, revenue guidance for its fiscal fourth quarter (current quarter) was better than expected for each segment — and Azure, too. Microsoft Why we own it : Microsoft is a core backbone of global productivity thanks to its Office 365 suite and hybrid cloud platform Azure. The company is also proving itself to be a key provider of artificial intelligence tools due, in part, to its large investment in OpenAI, the startup behind ChatGPT. We also like what it’s doing in the video gaming industry as it looks to grow recurring revenue streams. Competitors : Amazon , Alphabet and Salesforce Weight in portfolio : 2.9% Most recent buy : Aug. 5, 2024 Initiated : Dec. 4, 2017 We figured Microsoft would get its act together after disappointing last quarter, but we did not see a beat of this magnitude coming. We suspect few did, explaining why the stock is up so much in after-hours trading. If these gains hold on Thursday, Microsoft will be the only Magnificent Seven stock with a year-to-date gain. Meta Platforms isn’t far behind, thanks to its positive results Wednesday evening. Amazon and Apple , all fellow Club names, report after Thursday’s closing bell. Quarterly commentary Productivity and business processes reported better-than-expected revenue and operating income. Operating margins also improved by 2 percentage points. Microsoft 365 commercial…
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