Sou Hu Cai Jing·2025-08-04 03:04Core Viewpoint - Microsoft has solidified its position as one of the biggest winners in the AI boom, with its market capitalization reaching $4 trillion, driven by strong performance in both AI and non-AI core businesses [1][12]. Group 1: AI and Non-AI Business Performance - Microsoft is benefiting from enterprise clients shifting from purchasing IT equipment to renting through its cloud services, which includes increased demand for conventional computing devices to support AI projects [2]. - Azure, Microsoft's cloud service, saw a 33% year-over-year revenue growth in Q3, with over half of this growth coming from non-AI services. In Q4, Azure revenue grew by 39% year-over-year, driven primarily by its core infrastructure business [3][6]. - Microsoft 365 commercial cloud business grew by 16% year-over-year in Q4, while consumer office software revenue increased by 20%, marking the highest growth rate in recent years [3]. Group 2: Profitability and Market Trends - Non-AI business has a significantly higher profit margin compared to AI business, with non-AI Azure services estimated to have a gross margin of about 73%, while AI business margins range from 30% to 40% due to high infrastructure costs [7]. - Demand for Microsoft's higher-margin non-AI services remains strong, with a recent UBS survey indicating a notable improvement in enterprise attitudes towards IT spending, contrasting with earlier hesitance [8]. Group 3: Competitive Landscape and Valuation - Long-term trends in cloud computing are favorable for Microsoft, which benefits from a broad enterprise software product portfolio that enhances its cloud service coverage, even outside of AI [11]. - Despite strong growth from competitors like Amazon and Google, Microsoft’s stock has risen nearly 40% since early April, leading to a forward P/E ratio exceeding 33 times, which is slightly higher than Amazon and significantly above Alphabet's approximately 18 times [11][12].