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SUMMARY
Parkev Tatevosian, CFA, analyzes Microsoft's latest business performance, highlighting its expanding user base, AI-driven innovation, and financial results. He concludes with a fair value estimate suggesting the stock is currently undervalued and maintains a top 15 rating.
MAIN POINTS
- Microsoft's active Windows device base surpassed 1.6 billion, supporting strong demand for related products.
- Bing reached over 1 billion monthly active users, and LinkedIn's membership climbed to 1.3 billion, though active user figures are lower.
- Microsoft 365 consumer subscriptions neared 95 million, with AI features like agent mode increasing user satisfaction.
- Quarterly revenue reached $82.9 billion, up 18% year over year, exceeding previous forecasts.
- Operating income rose 20% and earnings per share increased 21%, while gross profit margin declined due to higher AI investments.
- A fair value of $447 per share is calculated, indicating Microsoft is undervalued compared to its current price of $415.
DETAILED ANALYSIS
Microsoft continues to demonstrate robust growth across its core business segments, with the number of active Windows devices worldwide exceeding 1.6 billion. This extensive installed base not only reinforces the company's dominance in operating systems but also drives adoption of supplementary products such as Microsoft 365. The integration of artificial intelligence into its productivity suite, including the introduction of agent mode as a default feature, has contributed to rising user satisfaction and a subscriber base approaching 95 million for Microsoft 365 consumer.
Bing, Microsoft's search engine, achieved a milestone by surpassing 1 billion monthly active users, while LinkedIn's total membership reached 1.3 billion, though the company does not disclose monthly active figures for the platform.
Financially, Microsoft reported quarterly revenue of $82.9 billion, representing an 18% year-over-year increase and outperforming earlier projections of 15% growth for the upcoming year. Operating income grew by 20%, and earnings per share rose by 21% to $4.27. Despite significant investments in artificial intelligence and computing infrastructure, which led to a decline in gross profit margin to 68%, the company's operating profit margin improved slightly to 46%.
This margin remains among the highest in the industry, surpassed only by a few technology leaders like Nvidia. Notably, Microsoft's total headcount declined year over year, indicating efficiency gains from AI adoption even as revenue expanded.
Based on these results, a fair value estimate of $447 per share was calculated, compared to the current market price of $415. This assessment suggests that Microsoft stock is undervalued, and the company maintains a position as a top 15 stock pick. The analysis underscores Microsoft's ability to leverage its scale, ongoing innovation, and operational efficiency to deliver strong financial performance while investing in future growth.
LINKS
- YouTube channel membership for early access, spreadsheets, and private Discord.
- Special offer for The Motley Fool Stock Advisor.
- Parkev Tatevosian's book on a six-step investing framework.
- Fiscal.ai investment research tool with a discount for viewers.
- Free monthly newsletter on Substack.