Microsoft Reports Strong Q3 Results Exceeding Expectations
Microsoft (NASDAQ: MSFT) has released its fiscal Q3 2025 results, showing revenues and earnings surpassing Wall Street estimates. The company posted a revenue of $70.1 billion and earnings of $3.46 per share, exceeding consensus estimates of $68.4 billion and $3.22, respectively. Increasing sales of Azure cloud computing services continue to drive Microsoft’s growth. Additionally, the fourth-quarter outlook has outperformed expectations, contributing to the Stock’s upward momentum following the earnings announcement. Analysts believe MSFT retains further growth potential despite recent gains.
Year-to-date, Microsoft’s stock has declined by 6% as of April 30th, which is comparatively better than the broader NASDAQ index, down 10%. It’s anticipated that Microsoft will experience a smaller impact from the current tariff issues than many other technology companies, a factor reflected in the company’s bullish outlook. For investors seeking a less volatile option than individual stocks, the High-Quality portfolio has outperformed the S&P 500, delivering returns exceeding 91% since its inception.
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Q3 Performance Overview
Microsoft’s revenue of $70.1 billion in Q3 represented a 13% year-over-year increase. Breaking down the segments, Productivity and Business Processes sales rose 10% to $29.9 billion, largely due to increased sales of Microsoft 365 products and LinkedIn solutions. The Intelligent Cloud segment saw a 21% revenue spike to $26.8 billion, spearheaded by Azure and other cloud services. The More Personal Computing segment experienced a 6% increase to $13.4 billion, attributed to Windows OEM and device sales, along with higher gaming revenues. Revenues from Azure and cloud services surged by 33%. Moreover, operating margins expanded by 110 basis points year-over-year to 45.7%, boosting earnings to $3.46 per share, an 18% increase from the previous year.
Looking ahead, Microsoft anticipates Q4 revenue to reach approximately $73.7 billion, surpassing the consensus estimate of $72.3 billion, fueled by expected 34% to 35% growth in Azure, compared to the 31% forecast.
Implications for MSFT Stock
The strong Q3 performance and optimistic outlook resonated positively with investors, causing MSFT Stock to jump 7% in after-hours trading. However, over a longer time frame, MSFT’s stock performance has shown volatility compared to the S&P 500, with returns of 52% in 2021, -28% in 2022, 58% in 2023, and 13% in 2024.
Conversely, the Trefis High-Quality (HQ) Portfolio, which comprises 30 stocks, has exhibited considerably lower volatility and has consistently outperformed the S&P 500 over the past four years. This stability is attributed to the HQ Portfolio stocks, which provide better returns with reduced risk compared to the benchmark index.
Given the ongoing uncertainties surrounding tariffs and trade dynamics, questions arise whether MSFT might repeat its 2022 and 2024 performance and underperform the S&P in the next year, or whether it will achieve notable growth. Despite recent gains, many analysts still see growth opportunities for MSFT Stock. Current valuations suggest a target of $500 per share, indicating a potential upside of around 18% from its recent after-hours trading price of $423. This valuation is anchored on a price-to-earnings (P/E) ratio of 39x, applied to trailing twelve-month earnings per share of $12.94. Though the current P/E ratio exceeds the stock’s four-year average of 35x, it seems justified by anticipated earnings growth, particularly from the expanding Cloud division.
While MSFT Stock shows potential for further growth, assessing Microsoft’s Peers on key metrics can provide additional context. For further insights, Peer Comparisons across various industries are also valuable.
The views and opinions expressed herein are those of the author and do not necessarily reflect the views or opinions of Nasdaq, Inc.
