Is "Magnificent Seven" Laggard Microsoft Ready to Rally?

Core Viewpoint - Microsoft is positioned for improved performance in 2025 following strong fiscal Q3 results and positive guidance, despite lagging behind its peers in the previous year [1]. Group 1: Azure Growth - Azure revenue increased by 33%, or 35% in constant currencies, marking the seventh consecutive quarter of over 30% growth [3]. - The growth was attributed to faster-than-expected capacity coming online and strong performance in non-AI business, with AI services contributing nearly half of Azure's overall growth [3]. - The overall "intelligent cloud" revenue rose 21% year over year to $26.8 billion, with GitHub's user base quadrupling to over 15 million [4]. Group 2: Future Outlook - For fiscal Q4, Azure revenue is forecasted to grow by 34% to 35% in constant currencies, driven by strong demand [5]. - Microsoft plans to increase its fiscal 2026 capital expenditure budget, focusing on short-lived assets like servers and GPUs rather than long-lived assets [6]. Group 3: Other Business Segments - Revenue from productivity and business processes, including Microsoft 365 and LinkedIn, grew 10% year over year to $29.9 billion [8]. - Microsoft 365 Copilot customer adoption tripled year over year, with significant growth in deal sizes and customer retention [9]. - The "more personal computing" segment, which includes Windows and Xbox, saw a 6% revenue increase to $13.4 billion, driven by a 21% growth in search and news advertising [10]. Group 4: Financial Performance - Microsoft's total revenue rose by 13% year over year to $70.1 billion, with earnings per share increasing by 18% to $3.46, surpassing analyst expectations [11]. - For fiscal Q4, Microsoft anticipates revenue between $73.15 billion and $74.25 billion, exceeding the consensus estimate of $72.26 billion [11]. Group 5: Investment Perspective - Microsoft is expected to maintain solid growth, particularly in Azure, while managing capacity to meet demand effectively [12]. - The stock trades at a forward price-to-earnings ratio of under 29 based on fiscal 2026 estimates, indicating a fair valuation [13]. - While Microsoft is considered a solid long-term investment, caution is advised against chasing the stock after its recent gains [14].