* Reports fourth quarter 2019 results on Thursday, July 18, after market close
* Revenue Expectation: $ 32.75 billion
* EPS Expected: $ 1.21
Microsoft (NASDAQ 🙂 is unlikely to disappoint investors when it reports its fiscal fourth quarter on Thursday afternoon: so many things are going well for this tech giant.
After an enormous transformation led by Satya Nadella, Microsoft has become one of the most powerful players in the fast-growing cloud computing market, with the second largest market share, with only Amazon (NASDAQ 🙂 in the future
More than five years ago, Nadella made the bet to diversify Microsoft's revenues from its traditional growth engines – Windows and Office – by investing heavily in data centers and other infrastructure to allow business customers to use applications and store their data. . The growth in this market continues unabated for Microsoft and drives the operating result.
Microsoft's Intelligent Cloud segment now covers more than 30% of the company's total revenue base. Sales of commercial cloud services, including Azure, Internet versions of Office software and some smaller products, increased by 41% in the quarter that ended in March, while profit margins for the company increased to 63%.
We believe that this power will be seen again when Microsoft releases its profit report tomorrow. The company sees continuous success in winning both large and small customers. In the fiscal third quarter, many major brands signed agreements to use Microsoft's Azure cloud software, including grocery store Kroger (NYSE 🙂 Co., Walgreens Boots Alliance (NASDAQ 🙂 Inc. and oil giant ExxonMobil (NYSE :).
These wins for the company's cloud business were primarily responsible for fueling a powerful rally in Microsoft shares this year, separating it from other large-cap tech giants such as Facebook (: NASDAQ 🙂 and Google & # 39; s mother, Alphabet (NASDAQ:) – struggling amid antitrust probes and data privacy concerns.
Microsoft shares – closed yesterday at $ 137.08 – are rising by around 35% this year. This peak has pushed the market value of the company above the coveted $ 1 trillion level, making it the world's most valuable company.
Is this rally continuing?
For the future, the big question for investors is how far this rally can go? At nearly 31 times the term gain, Microsoft shares are selling a high premium compared to many top-tech stocks. They also carry the highest multiple that the stock has ordered in more than 15 years, according to FactSet.
In our opinion, the factors that supported Microsoft shares in the past 12 months are still very much at stake. The cloud computing market is expected to grow from $ 285 billion in 2017 to $ 411 billion in 2020. That segment alone is large enough to increase the company's revenue growth over the next three to four years, Microsoft executives said.
In combination with cloud momentum, Microsoft also benefits from strong PC sales. The IDC reported last week that PC shipments have risen almost 5% year-on-year, thanks in part to the not yet completed waiting period for Windows 7, which will go out of service in January of the following year. According to a report in the Wall Street Journal, Microsoft is also planning to launch a new Xbox console mid-2021.
Bottom Line
While investors are worried about the global economic outlook and the longevity of this bull cycle, the foundations of Microsoft make it a safe bet in the technical space. We believe that Microsoft's earnings momentum will continue as it expands its market share in the cloud computing segment while maintaining its leading position in legacy software products such as Windows and Office. This sustainable benefit will help the company achieve sustainable double-digit revenue growth, earnings per share and free cash flow, making it a reliable technical stock to own in the long run.
