This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
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Microsoft turned in a great quarter, with strength across all of its segments.
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Azure continues to lead the way with revenue growth of nearly 40%.
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The stock's valuation has increased, but it still looks like a solid long-term holding.
After being the only "Magnificent Seven" stock to trail the performance of the S&P 500 last year, Microsoft (NASDAQ: MSFT) has come out swinging in 2025. The company closed out its fiscal year with another strong earnings report, helping lift its stock price. The stock is now up more than 25% on the year, as of this writing.
Let's take a closer look at the tech giant's fiscal fourth quarter results and prospects to see if the stock's momentum can continue, or if it's time to take some profits.
Azure leads the way again
Microsoft's cloud computing unit, Azure, was in beast mode to close out its fiscal year, reporting a whopping 39% increase in revenue. It was the eighth straight quarter that Azure revenue has risen by 30% or more, and well above its forecast for 34% to 35% growth. The company credited the strong performance to accelerated growth in its core infrastructure business, primarily from its largest customers.
Despite the huge growth, Microsoft said demand still remains above its current capacity and that it will be capacity-constrained through the first half of its fiscal year. It projected Azure revenue to grow by 37% in constant currencies in fiscal Q1.
In addition to artificial intelligence (AI), the company also called out quantum computing as the next big potential accelerator for cloud computing growth. It is also deploying the world's first operational Level 2 Quantum computer in partnership with Atom Computing.
Overall "intelligent cloud" revenue, which includes Azure, climbed 26% year over year to $29.9 billion. GitHub was another strong contributor to this segment, with GitHub Copilot users soaring 75% year over year to more than 20 million users.
Other segments also showed strong growth. The productivity and business processes segment -- home to Microsoft 365 and LinkedIn -- saw revenue climb 16% year over year to $33.1 billion. Growth was solid across its four main solutions in the segment (in the table below), led by a 21% jump in Microsoft 365 Consumer product revenue, helped by an earlier price increase and 8% subscriber growth. Microsoft's family of Copilot apps surpassed 100 million monthly active users across both its commercial and consumer solutions. Dynamics products, which is part of the segment, increased revenue by 18%, driven by Dynamics 365 revenue growth of 23%.
| Microsoft 365 Commercial | Microsoft 365 Consumer | Dynamics | ||
|---|---|---|---|---|
| Revenue growth | 16% | 21% | 9% | 18% |
Data source: Microsoft press release.
Revenue in its "more personal computing" segment -- home to Windows and Xbox -- rose 9% year over year at $13.5 billion. The search and news advertising business, which is also part of the segment, led the way with revenue climbing 21%. The company said the growth was driven by increases in both volume and revenue per search, as well as third-party partnerships. Windows OEM and device revenue, meanwhile, increased by 3%.
Microsoft's total revenue jumped by 18% year over year to $76.4 billion, with earnings per share (EPS) climbing 24% to $3.65. The results easily topped analyst estimates calling for $73.8 billion in revenue and $3.37 in EPS, as compiled by LSEG.
Looking ahead, the company guided for fiscal Q1 revenue of between $74.7 billion to $75.8 billion, which was above the $74.1 billion consensus.
The company plans to spend $30 billion in capital expenditure (capex) in fiscal Q1 and said full-year capex would be greater than fiscal year 2025, although grow at a slower pace. It will also put more emphasis on shorter-lived assets, like graphics processing units (GPUs), which will translate more directly to revenue.
Is the stock a buy?
While Microsoft has been seeing solid growth, it took it to another level in fiscal Q4. Nearly everything came together in the quarter, leading to one of the company's best quarterly reports in a long time.
Azure is leading the way, and the opportunity in front of it remains huge. However, cloud computing wasn't Microsoft's only growth driver. Its AI-assistant copilots are seeing solid momentum, helping drive growth in other parts of its business.
Looking at valuation, the stock now trades at a forward price-to-earnings (P/E) ratio of 35 times based on fiscal 2026 analyst estimates. While that isn't cheap, its PEG (price/earnings-to-growth) ratio of under 1.2 times is reasonable for a company seeing accelerating revenue growth that also owns a nice stake in OpenAI. Stocks with positive PEG ratios below 1 are generally viewed as undervalued, although growth stocks will often trade above this level.
Overall, I think Microsoft remains a solid long-term holding, and the growth it has been putting up is exciting. However, I wouldn't necessarily chase the stock at its current valuation, and would prefer it on a pullback.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
