Microsoft (MSFT:NASDAQ) drifted about 1% lower once after-market trading closed. In the wake of fourth quarter 2023 (fiscal Q2, 2024) results, which beat consensus forecasts on top and bottom lines, is the market’s love affair over with Washington state’s most recognised corporate son?

Not quite. As always, context is needed. In January, the stock is up nearly 10%, breezing beyond the $400 mark for the first time ever (even adjusted for past stock splits), and the share price has rallied nearly 25% since the end of October 2023. It is now the world’s largest company, overtaking Apple (AAPL:NASDAQ), no mean feat.

Clearly, an awful lot of progress was already built into consensus, so when numbers came in impressively above that mark, that they were not ‘blow out’ led to a not unreasonable pause. They say it is never wrong to take a profit, and while there are plenty that would argue the point, it is a widely enough followed investment principle to comprehend a little stake top-slicing.

WHAT DID THE NUMBERS LOOK LIKE?

Revenue expected: $61.1 billion

Revenue reported: $62 billion

Earnings expected: $2.78 per share

Earnings reported: $2.93 per share

Source: Investing.com

‘The key highlight is the 20% growth of Intelligent Cloud, reaching $25.9 billion, fuelled by a 30% (28% at constant currency) increase in Azure and other cloud services’, said Megabuyte analyst Leuan Turner.

Looking across this vast software empire, Microsoft Cloud revenue rose 24% (22% cc) to $33.7 billion, operating income grew 25% (23% cc) to $27 billion, a 3% beat, driven by improved operational leverage, with headcount 2% lower than a year ago, offsetting costs related to the Activision Blizzard acquisition. 

WHAT 2024 LOOKS LIKE

The Q2 launch of Copilot propelled Azure AI customers to around 53,000, a significant increase from 18,000 in September and 11,000 in July. That alone is hugely encouraging. It should equate to revenue impacts that more than offset any revenue headwinds experienced elsewhere due to cloud capacity constraints, or Microsoft’s slightly laboured volume-based advertising revenue given the macro backdrop. 

Microsoft published Q3 revenue guidance for Productivity and Business Processes, targeting 10% to 12% gains at $19.3 billion to $19.6 billion, 11% to 14% Personal Computing growth (to a $14.7 billion to $15.1 billion range), led by Intelligent Cloud’s 18% to 19% ($26 billion to $26.3 billion), again likely to remain the star turn.

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