Microsoft (MSFT) wrapped up Fiscal 2024 with impressive numbers, setting the stage for what is poised to be a stellar Fiscal 2025. The company reported double-digit revenue and earnings growth for the quarter and the full year, showing no signs of slowing down. It was driven by strong growth in its cloud division, particularly Azure, and its increasing focus on AI and gaming. As we head into Fiscal 2025, the tech giant’s bets on cutting-edge technologies and customer demand signal another strong year ahead. For this reason, I remain bullish on MSFT stock.
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Riding the Wave from Fiscal 2024 to Fiscal 2025
Let’s start with a brief review of Microsoft’s strong close to Fiscal 2024, which sets it up well for what’s to come. Revenues grew by 15% to $64.7 billion for the fourth quarter, pushing full-year revenues to $245 billion, up 16% compared to the year before. Earnings per share landed at $11.80 for the year, up 22% compared to last year, or 20% in constant currency.
Multiple drivers boosted these results; Azure alone posted a 30% revenue growth, mainly fueled by the growing demand for AI services. Microsoft Cloud, which pulled in $135 billion in revenue for the year, also grew by an impressive 23% year-over-year.
More importantly, Microsoft’s current momentum is poised to be sustained in Fiscal 2025. MSFT’s management expects double-digit revenue and operating income growth for next year. In fact, Microsoft sees Q1 revenue growth of 28% to 29% in Azure, driven by AI-related demand. Notably, management expects this momentum to continue throughout the first half of the fiscal year, with growth even accelerating in the second half as extra AI capacity comes online.
Let’s take a deeper look!
AI and Cloud: The Engines of Growth in Fiscal 2025
As I mentioned, Microsoft’s leadership in cloud computing and AI is expected to be a key growth driver in Fiscal 2025 as the company accelerates investments in AI infrastructure. The company’s developments in the space have heavily influenced my bullish stance on the stock.
To get further into the specifics, Azure has become a vital platform for AI workloads, with Satya Nadella commenting that AI demand remains a core driver of Azure’s growth. The company has achieved remarkable advancements in AI hardware, notably expanding data center capacity and enhancing its infrastructure through strategic partnerships with NVIDIA (NVDA) and AMD (AMD). Moreover, it has introduced its proprietary silicon, Azure Maia, to further strengthen its AI capabilities.
Another indicator of Microsoft’s powerful momentum in the industry is Azure AI’s customer base, which continues to expand rapidly. In Microsoft’s latest earnings call, Mr. Nadella commented that over 60,000 organizations are utilizing Azure AI services, up 60% year-over-year. Integrating AI into various enterprise solutions, including Microsoft 365 Copilot and Dynamics 365, has seen rapid adoption. The former, in particular, has snowballed, with the number of enterprise customers rising by more than 60% quarter-over-quarter in Q4. It’s easy to see why MSFT’s management expects sustained growth from this division.
Gaming and Consumer Segments Also Set to Contribute
In addition to AI and cloud, Microsoft’s gaming division is set for a strong year, solidifying my bullish view of the stock. Last year’s acquisition of Activision Blizzard has become a significant asset for the Xbox ecosystem, contributing to a 44% year-over-year growth in gaming revenue for Q4, largely fueled by the success of Xbox content and services.
With over half a billion monthly active users across platforms, Microsoft’s gaming division is now one of the company’s most significant revenue contributors. The inclusion of hit franchises like Call of Duty on Xbox Game Pass is expected to continue driving subscription growth in Fiscal 2025, while the introduction of new games and gaming content from recently acquired IP should further strengthen user engagement and, thus, the division’s revenues and income.
What Does Wall Street Expect for Fiscal 2025?
Considering these factors and Microsoft’s strong momentum, Wall Street remains highly optimistic about the company’s revenue and earnings growth. For Fiscal 2025, consensus estimates project a 13.8% increase in revenue, reaching $279 billion, with EPS rising by 11.7% to $13.18 – in line with management’s expectations. Another key element is Wall Street’s anticipation of mid-teens growth in revenue and EPS, at least through 2031, highlighting Microsoft’s prime positioning to capitalize on the continued expansion of Cloud and AI trends.
Is MSFT Stock a Buy or Sell?
Wall Street’s view on MSFT stock remains bullish. The stock maintains a “Strong Buy” consensus rating based on 29 Buy and one Hold recommendations assigned in the past three months. At $501.15, the average MSFT stock price target implies a 16.39% upside potential.
If you’re looking for an analyst to follow regarding MSFT stock, Wolfe Research analyst Alex Zukin, a five-star analyst according to Tipranks’ ratings, stands out as the most accurate over a one-year timeframe, delivering an average return of 34.51% per rating and a 97% success rate.
Final Thoughts
Summing up, Microsoft’s outstanding performance in Fiscal 2024, marked by double-digit growth across key areas, sets the stage for another strong year ahead. With AI and cloud services, particularly Azure, leading the charge and gaming gaining momentum thanks to the Activision acquisition, the company is well-positioned for another year of sustained growth in Fiscal 2025.
With Wall Street forecasting steady revenue and earnings growth, reaffirming expectations for sustained expansion in the medium to long term, Microsoft stands out as a strong player in the tech industry. This solid outlook is why I view it as a compelling investment opportunity going forward.
