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Headlines
- Microsoft's stock has gained approximately 12% year-to-date (YTD), lagging behind Amazon's 20% rise.
- Microsoft reported robust Q4 FY2024 earnings, with total revenues up 15% year-over-year (y-o-y) driven by growth across its key business segments.
- For FY2024, Microsoft's revenues increased 16% y-o-y to $245.1 billion, with significant contributions from Azure, Office 365, and gaming.
Microsoft's stock (NASDAQ:MSFT) has climbed about 12% YTD, slightly behind the 14% rise in the S&P 500 index over the same period. In comparison, Amazon has surged 20% YTD. At its current price of $423 per share, MSFT is trading 15% below its estimated fair value of $498, according to Trefis.
Despite a challenging financial environment, MSFT stock has shown significant gains, increasing from $215 in early January 2021 to around $425 now—a 100% rise. This is notable compared to the S&P 500's roughly 45% increase over the same period. However, this growth has not been linear: MSFT saw returns of 52% in 2021, a drop of 28% in 2022, and a rebound of 58% in 2023. In contrast, the S&P 500's returns were 27% in 2021, -19% in 2022, and 24% in 2023, indicating MSFT's underperformance in 2022. It's a reminder that individual stocks, including heavyweights like AAPL, NVDA, ORCL, GOOG, TSLA, and AMZN (NASDAQ:AMZN), have struggled to consistently outpace the S&P 500 in recent years.Interestingly, the Trefis High Quality (HQ) Portfolio, consisting of 30 stocks, has consistently outperformed the S&P 500 each year. This portfolio's success can be attributed to its ability to deliver better returns with lower risk compared to the benchmark index, avoiding the volatility seen in individual stocks.
Amid the current uncertain macroeconomic environment with high oil prices and elevated interest rates, questions arise about whether MSFT will experience another year like 2022 or if it will see strong growth. The tech giant exceeded expectations in the fourth quarter of FY2024 (FY July-June), posting total revenues of $64.73 billion—a 15% y-o-y increase. This growth was driven by an 11% rise in the productivity and business processes unit, a 19% gain in the intelligent cloud segment, and a 14% increase in the more personal computing business. Key contributors to the productivity and business processes unit were Office 365 commercial, LinkedIn, and dynamic products, while the intelligent cloud segment benefited from a 29% increase in Azure and other cloud services revenues, despite falling short of street estimates. Overall, net income rose by 10% y-o-y to $22 billion.
For FY2024, Microsoft's revenues increased 16% y-o-y to $245.1 billion, with all segments showing positive growth. The intelligent cloud segment, bolstered by Azure, saw significant gains, as did the productivity and business processes segment, driven by Office 365 commercial. Gaming also played a crucial role in boosting the more personal computing revenue. Operating income grew 24% y-o-y, resulting in a 22% increase in net income to $88.13 billion.
Looking ahead, the trend is expected to continue in the first quarter of FY2025. Microsoft's revenues are projected to reach $280 billion in FY2025. The company's net income margin is likely to stay around the same level as last year, leading to an estimated net income of $98.6 billion and an annual GAAP EPS of $13.28. With a price-to-earnings (P/E) multiple slightly above 37x, this results in a valuation of $498 per share.
