Microsoft Stock Alert: 3 Reasons MSFT Remains a Standout Investment

Microsoft (NASDAQ:MSFT) has been an interesting stock to keep an eye on in recent years. The company’s Microsoft Azure cloud product is now productive and processes tons of data that helps regular companies run their businesses.

Artificial intelligence is the next stage in Microsoft’s growth cycle. The rise of generative AI creates multiple growth opportunities for both the tech giant’s cloud and search businesses. Here are three key reasons why having Microsoft in your portfolio will result in consistent, long-term gains.

Strong earnings report to start 2024

Despite general market turmoil, there were some bright spots at the end of April. The software giant Microsoft achieved a strong increase in profits in the third quarter of the 2024 financial year.

Microsoft’s third-quarter revenue was $61.9 billion, above Wall Street’s average revenue estimate of $60.9 billion. This represents a solid increase of 17% compared to the same period last year.

Likewise, Microsoft’s reported net income and earnings per share numbers were strong. The tech giant posted net income of $21.9 billion, up 20% year-over-year, while earnings per share came in at $2.94.

Essentially, Microsoft reported double-digit growth figures in all key business segments. The company’s Intelligent Cloud, which includes Microsoft Azure services, reported 21% year-over-year revenue growth.

Microsoft’s once-successful Xbox segment reported a 62% year-over-year increase in revenue due to positive revenue impacts from the controversial Activision merger.

These key metrics point to a growing company despite ongoing macroeconomic headwinds, which is what investors should look for in a global technology company.

Microsoft Azure remains an important growth engine for companies

Microsoft Azure is the technology giant’s most important cloud product and the main driver of revenue growth. In the company’s most recent earnings report, Azure revenue rose 31%, compared to 30% in the previous quarter.

Artificial intelligence capabilities have been largely responsible for the growth of the cloud service. According to CNBC, 7 percentage points of Azure’s growth came from AI, an increase from last earnings season.

Artificial intelligence is expected to continue to drive Microsoft Azure’s growth. Particularly as servers increasingly take over the delivery of AI models, cloud services will be crucial for supporting artificial intelligence. Against this background, the growth of Azure is very welcome.

MSFT’s valuation is high, but not excessive

US stocks have weathered several weeks of sustained volatility. The S&P500 and Nasdaq Composite fell 4.16% and 4.41%, respectively, in April.

This significant loss, one of the largest in recent memory, resulted in the year-to-date total return increasing to 7.50% and 5.53%, respectively. Microsoft shares also had a difficult month in April. The tech giant’s share price fell 7.46%.

So far, the stock’s year-to-date return is 8.34%, which beats the market but lags other tech giants alphabet (NASDAQ:GOOG,NASDAQ:GOOGL), Nvidia (NASDAQ:NVDA), And Amazon (NASDAQ:AMZN).

That brings us to Microsoft’s valuation. The company’s shares trade at 32.1 times forward earnings, which is still below Amazon and Nvidia.

A rating in the middle makes Microsoft’s valuation high, but not excessive. In a market with inflated metrics, Microsoft isn’t the top performer, and that should provide some relief to potential investors.

At the time of publication, Tyrik Torres did not hold, directly or indirectly, any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s publication policies.