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Forbes
01-05-2025
- Business
- Forbes
More Upside For MSFT Stock After An Impressive Q3?
The Microsoft logo is displayed on a screen during a speech by Microsoft vice-chair and president ... More "digital resilience in a time of geopolitical volatility" at the Atlantic Council, in Brussels on April 30, 2025. (Photo by Nicolas TUCAT / AFP) (Photo by NICOLAS TUCAT/AFP via Getty Images) Microsoft (NASDAQ: MSFT) has recently announced its fiscal Q3 2025 results (the fiscal year concludes in June), with both revenue and earnings surpassing expectations. The company reported $70.1 billion in revenue and earnings of $3.46 per share, compared to the consensus estimates of $68.4 billion and $3.22, respectively. Microsoft continued to benefit from rising sales of Azure cloud computing services. Furthermore, the outlook for the fourth quarter surpassed street expectations, contributing to the increase in the stock price following the earnings announcement. We believe that MSFT still has additional growth potential despite its recent gains. Even with a 6% decline year-to-date (as of April 30th), Microsoft's (MSFT) stock performance has been a bit better than that of the broader NASDAQ index, which has dropped by 10%. We expect Microsoft will experience a relatively smaller effect from the existing tariff situation in comparison to many other technology firms—a resilience reflected in the company's positive outlook. However, if you seek an upside with a smoother experience than holding an individual stock, consider the High-Quality portfolio, which has outperformed the S&P and achieved >91% returns since its inception. Microsoft's revenue of $70.1 billion in Q1 represented a 13% year-over-year increase. Analyzing the segments, sales in Productivity and Business Processes rose by 10% to $29.9 billion, driven by increased sales of Microsoft 365 products and LinkedIn solutions. Revenue from the Intelligent Cloud segment grew by 21% to $26.8 billion, primarily due to Azure and other cloud offerings. Finally, sales in More Personal Computing increased by 6% to $13.4 billion, driven by growth in Windows OEM and devices, along with higher gaming sales. Microsoft saw a 33% rise in revenue from Azure and cloud services. The company not only experienced higher sales but also expanded its operating margin by 110 basis points year-over-year to 45.7%. Increased revenues, combined with margin expansion, led to earnings of $3.46 per share, an 18% increase year-over-year. Looking ahead, Microsoft anticipates its Q4 revenue to be around $73.7 billion, exceeding the consensus estimate of $72.3 billion. This projection accounts for a 34% to 35% growth in Azure, compared to the anticipated 31%. A strong Q3 and a positive outlook were well-received by investors, resulting in a 7% surge in MSFT stock during after-hours trading. However, assessing a slightly longer timeframe, the increase in MSFT stock over the past four years has been far from steady, with annual returns being significantly more volatile than the S&P 500. The returns for the stock were 52% in 2021, -28% in 2022, 58% in 2023, and 13% in 2024. In contrast, the Trefis High Quality (HQ) Portfolio, which includes 30 stocks, is significantly less volatile. Moreover, it has outperformed the S&P 500 comfortably over the last four years. Why is that? As a collective, HQ Portfolio stocks offered better returns with lower risk relative to the benchmark index; demonstrating less volatility, as seen in HQ Portfolio performance metrics. Considering the current uncertain macroeconomic environment concerning tariffs and trade wars, could MSFT encounter a similar scenario as it did in 2022 and 2024 and underperform the S&P over the next 12 months, or will it experience a substantial increase? Despite its recent rise, we believe MSFT stock has further room for growth. We estimate Microsoft's Valuation at $500 per share, indicating a potential upside of nearly 18% from its current after-hours trading price of $423. This forecast is grounded on a price-to-earnings (P/E) ratio of 39x applied to the trailing twelve-month earnings per share of $12.94. Although the current P/E ratio of 39x exceeds the stock's four-year average of 35x, we believe this elevated valuation is warranted given the anticipated earnings growth driven by increasing contributions from its Cloud business. While MSFT stock appears to have room for more growth, it is useful to examine how Microsoft's Peers perform on important metrics. Additional valuable comparisons for companies across various industries can be found at Peer Comparisons.
Forbes
23-04-2025
- Business
- Forbes
European Commerce Will Suffer EU's Attacks On Apple And Meta The Most
This photograph taken on March 19, 2025 shows European flags outside the EU headquarters in ... More Brussels. (Photo by Nicolas TUCAT / AFP) (Photo by NICOLAS TUCAT/AFP via Getty Images) The EU is soon to intimately understand a truth too often lost on politicians and regulators: the only closed economy is the world economy. This will become apparent in the aftermath of the EU's $570 million and $228 million fines respectively levied on Apple and Meta. The EU's regulators will describe the fines as harmful to Apple and Meta uniquely, and consequences of their alleged failure to comply with the EU's Digital Markets Act (DMA). It will perhaps sound nice in the press releases, but it won't be so nice for European businesses reliant on the market reach and resulting prosperity of Apple and Meta. To see why, contemplate a recent Wall Street Journal headline concerning Meta. It reads this way: 'Meta Faces $7 billion In Lost Ad Revenue From China.' Well, yes. What's true for misguided pols in the EU is similarly true for misguided American political figures who view tariffs as something 'others' pay. Precisely because the United States has long been a large version of 'Hong Kong' when it comes to low tariffs, producers around the world have worked feverishly to serve American workers rendered most productive (the division of labor loves workers more than any other economic arrangement ever conceived) by an open stance to imports that by extension has rendered them most acquisitive. That the U.S. market has long been so enticing to foreign producers has logically redounded to U.S. social media companies like Meta on which Americans spend so much of their free time. Meta's sites are ad-supported, and it's no surprise that foreign businesses (including Chinese giants like Temu and Shein) have spent impressive sums on ad placement at the various Meta sites as a way of catching the eyes of the world's greatest producers who are, by extension, the world's greatest consumers. Amid 145% tariffs slapped on Chinese goods, ad spending by Chinese business stateside will decline substantially. Bringing it back to Europe, the EU, and the DMA, among other things the Act demands that Meta provide free access to European users even if they choose the ad-free version of Meta's social media sites. Which means Meta is being asked to give its product away for free. Tough just on Meta? Not a chance. As its unique size and reach attests, European businesses very much rely on Meta to reach customers. Translated, the pain of ad-free Meta sites by decree will be felt most acutely by European businesses striving for growth. What about Apple? The DMA 'requires major platform holders or "gatekeepers" like Apple to provide third-party developers equal access to iOS and iPadOS system tools and features.' Translated, Apple must make its globally revered products operable with apps and products not specifically vetted by Apple. That's like U.S. regulators telling Ferrari that it must open up its cars to inputs manufactured by Dodge. Not a chance. Apple not only has a right to restrict which third-party users can operate on its systems, it must do so. And it must do so to the betterment of all third-party players, including those from Europe. Precisely because Apple's products are so beloved, third parties benefit substantially from inclusion. If Apple is forced toward permission-free architecture, it will lose and by extension third party app developers will lose via the destruction of Apple's brand. It's being said that excessive enforcement of the DMA by the EU is a veiled swipe at President Trump's tariffs from the EU. If so, or even if not, the results of illiberalism by governmental bodies on both sides of the Atlantic are clear for all to see. What harms 'them' harms us, and vice versa. As always, the only closed economy is the world economy.
