Microsoft (MSFT) reported earnings on April 25. Here's what our analyst thought of the report.

Key Morningstar Metrics for Microsoft

• Fair Value Estimate: $435
• Morningstar Rating: 3 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

We've raised our fair value estimate for the stock to $435 per share, from $420 previously, after another set of strong quarterly results and stronger near-term growth and profitability.

What We Thought of Microsoft's Results

Wide-moat Microsoft continues to deliver with strong third-quarter results, topping both our top- and bottom-line estimates. 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.