Going forward, Microsoft management largely assured investors during the earnings call that Azure will continue to benefit from a robust demand environment, defying fears of a slowdown.
In addition to favourable secular trends buoyed by robust cloud spending in the enterprise sector, Microsoft Azure has also bolstered its offerings to better capitalise on the opportunities in the cloud computing space going forward.
These include Microsoft’s recent acquisition of Nuance, a “leader in conversational AI and ambient intelligence”.
There’s also the commitment to improving its industry-specific cloud-computing solutions to better address different end users’ needs and expand its addressable market.
Management issued their first FY2023 outlook including an expected double-digit growth in revenue and operating income.
However, the guidance could mean only a high single-digit EPS growth in US Dollars given the expected currency headwinds of 4% for revenues and 2% for cost of goods sold (COGS).
The solid forward guidance provided by management has helped to address some of the concerns on growth going forward, especially given the warnings of broad-based demand softening in consumers and markets.
Is Microsoft stock a buy after earnings?
The earnings results have demonstrated the resilient business model of Microsoft, specifically its Productivity and Business Processes segment.
While the recession-prone More Personal Computing (MPC) business segment is expected to see a moderate slowdown, growth will remain supported by Microsoft’s Intelligent Cloud segment, which is expected to be lead growth driver in FY2023.
Downside risks remain with the foreign exchange rate impact as well as the risks of a recession.
But Microsoft’s resilient growth profile and digital moat in the cloud computing space is well positioned to withstand these uncertainties ahead.
At its current price of US$268.74, Microsoft is still hovering around 23% below its recent high of just under US$350.
In terms of its valuation, Microsoft is trading at a forward price-to-earnings (PE) ratio of 24 times, which is about one-fifth lower than its five-year average of 31 times.
While I don’t think the market valuation will show a significant rebound in the near-term due to the mounting macro headwinds, Microsoft at its current level looks to be an attractive long-term investment.
Disclaimer: ProsperUs Investment Coach Billy Toh doesn’t own shares of any companies mentioned.
Billy is passionate about the capital market and believes in investing for the long haul. Prior to this, he was an economist at RHB Investment Bank, covering Thailand and Philippines market. He also worked as a financial journalist at The Edge Malaysia and has experience working with an asset management firm. Aside from the capital market, Billy loves a good conversation over a cup of coffee, is a fitness enthusiast and a tech geek.