•
Fair
Value
Estimate:
$435
•
Morningstar
Rating:
3
stars
•
Morningstar
Economic
Moat
Rating:
Wide
•
Morningstar
Uncertainty
Rating:
Medium
What
We
Thought
of
Microsoft’s
Results
Wide-moat
Microsoft
(MSFT)
continues
to
deliver
with
strong
third-quarter
results,
topping
both
our
top-
and
bottom-line
estimates.
Given
stronger
near-term
growth
and
profitability,
we
are
raising
our
fair
value
estimate
to
$435
per
share,
from
$420
previously.
Results
are
impressive
from
most
angles,
but
we
highlight
strength
in
AI,
Azure,
and
gaming;
a
surge
in
bookings
from
large
Azure
deals;
and
robust
margin
performance
despite
downward
pressure
from
the
Activision
acquisition
are
our
key
takeaways.
Artificial
intelligence
remains
the
focal
point
and
contributed
700
basis
points
to
Azure
growth.
Management
also
provided
a
high-level
preview
for
fiscal
2025
that
included
double-digit
revenue
growth
and
operating
margin
contraction
of
about
1
percentage
point,
which
is
consistent
with
our
model.
With
shares
trading
up
4%
after
hours,
they
remain
in
3-star
territory.
We
see
results
as
reinforcing
our
long-term
thesis
centering
on
the
proliferation
of
hybrid
cloud
environments
and
Azure
as
the
firm
continues
to
use
its
on-premises
dominance
to
allow
clients
to
move
to
the
cloud
at
their
own
pace.
We
centre
our
growth
assumptions
around
Azure,
Microsoft
365
E5
migration,
and
traction
with
the
Power
Platform
for
long-term
value
creation.
AI
is
also
quickly
supplementing
growth
as
well,
which
we
see
as
another
secular
driver.
For
the
March
quarter,
revenue
increased
17%
year
over
year
to
$61.86
billion,
compared
with
the
midpoint
of
guidance
of
$60.50
billion.
We
calculate
Activision
added
about
$2.05
billion
to
revenue.
Relative
to
the
year-ago
period,
productivity
and
business
processes
rose
12%,
intelligent
cloud
increased
21%,
and
more
personal
computing
expanded
17%.
Compared
with
guidance,
both
MPC
and
IC
came
in
above
the
high
end,
while
PBP
was
just
below
the
high
end.
Good
sales
execution
and
sales
mix
toward
software,
away
from
hardware,
buttressed
margins.
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