It has been a choppy week for the markets, but they ended strong on Friday, fueled by a better-than-feared inflation report and robust earnings by a Magnificent Seven stock.
On the inflation front, the Personal Consumption Expenditures (PCE) index for March was not as bad as expected, although it did tick as much as 2.7% in March from 2.5% in February. Many had feared the number could be higher, given the first-quarter PCE increase of three.4% released on Thursday with the GDP report. Nonetheless, the two.7% reading for March was still higher than the two.6% rise that economists had expected.
The opposite bit of excellent news got here from Microsoft (NASDAQ:MSFT), which posted robust fiscal third-quarter earnings for the period that ended March 31.
The mixture of those two aspects had the markets trending higher on Friday, led by the Nasdaq Composite, which was up greater than 300 points or about 2% on Friday morning.
Microsoft scores revenue and earnings beat
In its fiscal third-quarter earnings report released Thursday after the closing bell, Microsoft posted results that easily topped analysts’ estimates. Revenue climbed 17% yr over yr to $61.9 billion while net income surged 20% to $21.9 billion or $2.94 per share.
The largest driver of revenue growth for Microsoft was its Intelligent Cloud business, which surged 21% yr over yr to $26.7 billion. Inside this business, server products and cloud services revenue increased 24%, driven by a 31% increase in Azure, its artificial intelligence-fueled cloud segment.
The general cloud business, which cuts across multiple segments, saw its revenue rise 23% to $35.1 billion, representing about 56% of Microsoft’s total revenue for the quarter. The gross margin within the cloud business was 72%, on par with the previous quarter and the identical quarter a yr ago.
Revenue in Microsoft’s Productivity and Business Processes segment surged 12% to $19.6 billion, while More Personal Computing revenue jumped 17% to $15.6 billion. Throughout the PC segment, Windows revenue rose 12%, as did search and promoting sales. Xbox content and services revenue soared 62%, but that was mostly driven by the recent Activision acquisition.
“Microsoft Copilot and Copilot stack — spanning on a regular basis productivity, business process, and developer services, to models, data, and infrastructure — are orchestrating a latest era of AI transformation, driving higher business outcomes across every role and industry,” said Microsoft Chairman and CEO Satya Nadella on the earnings call.
Nadella added that Azure gained market share within the quarter as more customers used the platform to develop their very own AI solutions.
“Our AI innovation continues to construct on our strategic partnership with OpenAI. Greater than 65% of the Fortune 500 now use Azure OpenAI Service,” he added. “Microsoft Copilot and Copilot stack are orchestrating a latest era of AI transformation, driving higher business outcomes across every role and industry.”
Outlook is healthier than expected
Microsoft stock traded 3% higher on Friday, with the shares returning roughly 11% yr up to now.
Investors were little question encouraged not only by the outcomes but additionally by Microsoft’s outlook for fiscal Q4 and the total fiscal yr. The corporate expects revenue of $28.4 billion to $28.7 billion in Intelligent Cloud, which could be up from $24 billion in the identical quarter a yr ago. The fiscal-Q4 estimate is barely higher than analysts had estimated.
More specifically, the Azure business is predicted to grow its revenue by 30% to 31% in the present quarter, which can also be above expectations.
For the total fiscal yr, Microsoft expects double-digit revenue and operating income growth, with the operating margin down about one point. Moreover, capital expenditures are expected to be higher for the fiscal yr than they were the previous yr resulting from continued investments in cloud and AI infrastructure.
Microsoft received a slew of price-target increases after posting its latest earnings results, and it stays a consensus buy, with a mean price goal of $475 per share, which could be about 15% higher than the present price.
Trading at around 36 times earnings, Microsoft’s valuation is in a good range, and with its momentum, it looks prefer it has some room to run.