Should Investors Buy Microsoft Stock Ahead of Q4 Earnings Release?
The Zacks Consensus Estimate for revenues is pegged at $73.71 billion, indicating growth of 13.88% from the figure reported in the year-ago quarter.
The consensus mark for earnings has remained steady at $3.35 per share over the past 30 days, suggesting 13.56% year-over-year growth.
MSFT Earnings Surprise History
In the last reported quarter, the company delivered an earnings surprise of 8.13%. The company's earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 5.21%.
Microsoft Corporation Price and EPS Surprise
Microsoft Corporation price-eps-surprise | Microsoft Corporation Quote
Earnings Whispers for MSFT
Our proven model does not conclusively predict an earnings beat for Microsoft this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.
MSFT has an Earnings ESP of -0.64% and a Zacks Rank #2 at present. You can see the complete list of today's Zacks #1 Rank stocks here.
Factors Shaping MSFT's Upcoming Results
Microsoft's upcoming fourth-quarter fiscal 2025 results are expected to demonstrate strong momentum across its core business segments, driven by continued AI infrastructure investments and robust cloud adoption. The company positioned itself well for solid quarterly performance through strategic platform expansions and key product launches during the period, thus making it an appealing pick for investors ahead of the upcoming results.
In Productivity and Business Processes, Microsoft projects revenues between $32.05 billion and $32.35 billion, with model estimates indicating 12.2% year-over-year growth to $32.1 billion.
Microsoft is expected to have benefited from sustained Microsoft 365 Commercial cloud growth, with management guiding approximately 14% constant currency (cc) expansion. The segment capitalized on continued ARPU growth through E5 and Microsoft 365 Copilot adoption, while LinkedIn maintained steady performance despite hiring market headwinds. For LinkedIn, the company expects revenue growth in high single digits.
Microsoft enhanced its competitive position through major Build 2025 conference announcements, including new agent capabilities and enterprise-grade AI tuning features rolled out during the quarter.
The Intelligent Cloud segment continues to remain the primary growth engine, with revenue projections between $28.75 billion and $29.05 billion. Our model estimate for this segment is pegged at $28.89 billion, indicating growth of 21.5% from the figure reported in the year-ago quarter. Azure remains the standout performer, with revenue growth projected between 34% and 35% in cc.
Microsoft added more AI computing power ahead of schedule in the previous quarter, helping the company meet rising customer demand even with some supply limits continuing past June. The company's $80 billion spending plan for fiscal 2025 helped build more data centers worldwide, with most of the investment happening in the United States.
Microsoft's Build 2025 developer conference showcased the company's comprehensive AI platform strategy, introducing multi-agent orchestration capabilities, enterprise-grade security features and expanded model partnerships. These initiatives reinforced Microsoft's leadership position in enterprise AI adoption and positioned the company well for sustained growth momentum into fiscal 2026.
In Enterprise Services, revenues are expected to grow in mid-to-high single digits. The company expects Server product revenues to decline in mid-single digits.
For More Personal Computing, the company projects revenues between $12.35 billion and $12.85 billion. Our model estimate for this segment is pegged at $12.43 billion, indicating growth of 1% from the figure reported in the year-ago quarter.
More Personal Computing is expected to have shown resilience through successful product rollouts, including the deployment of Recall, Click to Do, and enhanced Windows Search features to all Copilot+ PCs during the to-be-reported quarter. The segment received a significant boost from the phenomenal success of A Minecraft Movie, which achieved record-breaking box office performance, exceeding $900 million globally and drove increased weekly active users for the gaming franchise by over 75% year over year.
Windows revenue performance appears contingent on improving PC demand trends. According to the preliminary results from the International Data Corporation Worldwide Quarterly Personal Computing Device Tracker, second-quarter 2025 worldwide PC shipments reached 68.4 million units, growing 6.5% year over year, though Microsoft expects Windows OEM revenues to decline in mid-to-high single digits.
The competitive landscape shows mixed results, with Lenovo LNVGY and Hewlett Packard HPE achieving 15.2% and 3.2% shipment growth, respectively, while Dell Technologies DELL experienced a 3% decline.
In Gaming, the company expects revenues to grow in mid-single digits. Microsoft expects Xbox content and services revenues to grow in high single digits. This moderate performance in consumer-facing segments contrasts with the stronger enterprise and cloud divisions.
MSFT Price Performance & Stock Valuation
Shares of MSFT have gained 21.2% in the year-to-date period compared with the broader Zacks Computer & Technology sector's increase of 10.8%. Shares of LNVGY and DELL have gained 2.3% and 11.4%, respectively while HPE has lost 3.9% in the same period.
Year-to-date Performance
Now, let's look at the value Microsoft offers investors at current levels. MSFT is trading at a premium with a forward 12-month P/S of 11.99X compared with the Zacks Computer - Software industry's 8.93X, reflecting a stretched valuation.
MSFT's P/S F12M Ratio Depicts Stretched Valuation
Investment Thesis
Microsoft presents a compelling investment opportunity ahead of fourth-quarter fiscal 2025 earnings, with an estimated 13.88% revenue growth to $73.71 billion driven by robust AI infrastructure investments and cloud adoption. The company's strategic positioning in enterprise AI through comprehensive platform expansions and Azure's impressive 34-35% cc growth trajectory demonstrate sustainable competitive advantages. Despite premium valuation and intensifying competition, Microsoft's $80 billion investment in global data centers, successful AI integration across productivity suites and strong momentum in the Intelligent Cloud segment position the company for continued market leadership and long-term value creation for shareholders.
Final Thoughts
Microsoft's strong fundamentals, driven by AI leadership and cloud dominance, make it an attractive investment despite a premium valuation. With projected double-digit revenue growth, robust Azure expansion and strategic AI investments positioning the company for sustained market leadership, investors should consider buying the stock ahead of fiscal fourth-quarter earnings. The company's comprehensive AI platform strategy ensures long-term competitive advantages and value creation.
#1 Semiconductor Stock to Buy (Not NVDA)
The incredible demand for data is fueling the market's next digital gold rush. As data centers continue to be built and constantly upgraded, the companies that provide the hardware for these behemoths will become the NVIDIAs of tomorrow.
One under-the-radar chipmaker is uniquely positioned to take advantage of the next growth stage of this market. It specializes in semiconductor products that titans like NVIDIA don't build. It's just beginning to enter the spotlight, which is exactly where you want to be.
See This Stock Now for Free >>
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This article originally published on Zacks Investment Research (zacks.com).
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