Why Microsoft stock was in rally mode on Wednesday

The tech giant dispelled fears of cloud computing weakness and got a bump from artificial intelligence (AI).

| More on:
2 friends playing a video game

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Shares of Microsoft (NASDAQ: MSFT) charged sharply higher Wednesday morning, surging as much as 4.7%. As of 10:44 a.m. ET, the stock was still up 3.2%.

The catalyst that sent the tech giant higher was its quarterly financial results, which easily outpaced expectations driven by strong demand for its cloud computing services and an early win for its artificial intelligence (AI) services.

Here's why Wall Street loved Microsoft's results

For its fiscal 2024 first quarter (ended Sept. 30), Microsoft's revenue grew 13% year over year to $56.5 billion. The better-than-expected results also gave a significant boost to the bottom line, as diluted earnings per share (EPS) of $2.99 rose 27%.

Investors breathed a sigh of relief, fearing Microsoft had been caught up in the AI hype cycle. To give those numbers context, analysts' consensus estimates had been calling for revenue of $51.4 billion and EPS of $2.50. The strength of the results caught investors off guard, given the continuing uncertainty in the economy.

In fact, each of Microsoft's major business segments outdid expectations, but the strongest performer was Azure Cloud, which grew 29% year over year, far better than Wall Street's expectations for growth of 26%.

Microsoft CFO Amy Hood left no doubt as to what drove the blockbuster results, noting that Azure's revenue growth was fueled by "higher than expected AI consumption."

Is Microsoft stock a buy?

Equally as important as the strong results was management's commentary, which suggested that there was much more where that came from. CEO Satya Nadella noted that Microsoft's AI-fueled Copilot productivity tools had already attracted more than 37,000 organizations and 1 million paid users, up 40% sequentially, which suggests Copilot is off to a strong start. That's even more impressive considering the breakout product is still limited to "early access" and won't be released for general availability for enterprise customers until next week.

With that as a backdrop, Microsoft's outlook suggests additional acceleration is on the horizon. The company is guiding for revenue of roughly $60.9 billion, or growth of about 15% at the midpoint of its guidance. Wall Street had been forecasting revenue of $55.1 billion, so investors cheered the strength of Microsoft's forecast.

Given its continuing robust growth and strong prospects, Microsoft stock is a buy. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Danny Vena has positions in Microsoft. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Microsoft. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on International Stock News

Smiling man working on his laptop.
International Stock News

Which 'other' US AI stock is soaring this week?

This US AI stock is following Nvidia's footsteps in more than one way.

Read more »

Legendary share market investing expert and owner of Berkshire Hathaway Warren Buffett
International Stock News

Warren Buffett meets AI: Is Berkshire Hathaway prepared for technological disruption?

Berkshire Hathaway's portfolio may contain underappreciated AI-associated risks.

Read more »

A man looking at his laptop and thinking.
International Stock News

Nvidia stock is still a great buy — but when should investors sell shares?

Here are three solid reasons for investors to consider selling shares of the artificial intelligence (AI) chip leader.

Read more »

Three exuberant runners dash towards the camera. One raises her arms in triumph; another jumps in the air with arms raised. The third runner gives a satisfied smile.
International Stock News

Why Tesla stock jumped today

Tesla investors seem to want to keep CEO Elon Musk happy.

Read more »

A woman holds a soldering tool as she sits in front of a computer screen while working on the manufacturing of technology equipment in a laboratory environment.
International Stock News

Prediction: This will be Nvidia's next big move

The GPU leader's next big growth catalyst isn't being talked about much by investors -- yet.

Read more »

streaming stocks represented by woman watching tv on tablet
International Stock News

Why Apple stock popped (again) Wednesday morning

Wall Street is increasingly bullish on the iPhone maker's plans for artificial intelligence (AI).

Read more »

Boral share price divestment Banknote ripped in half
International Stock News

Is Nvidia stock a buy after the 10-for-1 stock split?

Shares in this artificial intelligence titan have become significantly cheaper, but its massive market cap remains the same.

Read more »

Woman relaxing and using her Apple device
International Stock News

Why Apple stock popped Tuesday morning

Wall Street is bullish on the iPhone-maker's plans for artificial intelligence (AI).

Read more »