This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Key Points
- Microsoft stock still has potential for market-beating returns despite its large market cap.
- Accelerating growth in Microsoft’s cloud business, particularly Azure, is a catalyst for the stock.
Microsoft (NASDAQ: MSFT) is one of the largest companies in the world, with a market cap of $3.81 trillion at the time of writing. Despite the company being around for a long time and creating tremendous wealth for shareholders, the stock is still showing the potential to deliver market-beating returns.
The stock is up about 23% year to date, roughly matching the return of the Nasdaq Composite. It has outperformed the Nasdaq over the last three- and five-year periods. One reason it's not too late to expect the stock to deliver superior returns is the accelerating growth in its cloud business.
Microsoft's cloud business is booming
Microsoft's cloud revenue reached $49 billion last quarter, up 26% year over year. This made up 63% of its total business. The Azure enterprise cloud platform is experiencing impressive demand for artificial intelligence (AI) services. Azure's revenue was up 40% year over year, a slight uptick over the previous quarter's 39% growth rate.
Azure's momentum is very telling about the broader demand for AI. Microsoft posted this growth despite having limited data center capacity relative to demand. This means Microsoft left some revenue on the table. However, investors can see the demand across its cloud offering through its remaining performance obligations, which grew 50% year over year to almost $400 billion.
This echoes similar strength in demand from other cloud companies. This reveals that Microsoft's cloud business could see accelerating growth as it adds more data center capacity, which is fuel for the stock in 2026. Microsoft is one of the top cloud service providers, putting it in a solid position to capitalize on growing demand for AI and reward shareholders over the next decade.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
