MSFT Stock: Is Microsoft a buy after its third-quarter earnings beat?

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  • Since the publication of third quarter results on Tuesday, Microsoft (MSFT) the stock is up almost 5%.
  • Microsoft has shown it can still generate double-digit revenue growth despite volatile economic conditions and slowing PC sales.
  • It’s a bit more expensive today than it was at the start of the week, but MSFT stock is still down 15% in 2022 and is a buying opportunity for growth investors.

Source: Asif Islam / Shutterstock.com

After a decade of almost uninterrupted growth, Microsoft (NASDAQ:MSFT) the stock hit a brick wall in 2022. It’s not the only one. Many tech stocks have been in the dumps this year. Investor fears about economic troubles, war and ongoing supply chain challenges led to shunning high-growth stocks like those in the tech sector in favor of safer choices.

Tuesday, Microsoft announced its third quarter results for fiscal year 2022. Amid concerns about plummeting PC sales (after the industry experienced a surge of growth during the pandemic), Microsoft delivered strong results. Revenue of $49.4 billion was up 18% year over year. Diluted earnings per share of $2.22 increased 9%. EPS and revenue exceeded analysts’ expectations.

In the two days since the release of third quarter results, MSFT stock rose almost 5%. However, it remains down more than 15% since the start of the year. The company’s strong performance, combined with the current discount rate, means now is the perfect time for long-term growth investors to buy Microsoft stock.

Teleprinter Company Current price
MSFT Microsoft $283.54

Windows 11 is killing it

The main story of Microsoft’s third quarter is its cloud computing efforts. Microsoft Cloud revenue grew 32% year-over-year. The $23.4 billion in sales it generated accounted for nearly half of the company’s total revenue for the quarter. The company’s Azure cloud computing unit saw its revenue increase by 46%.

The critical importance of cloud computing to Microsoft is undeniable, both today and in the future. However, I want to touch on two other areas where the company has experienced unexpected growth. These are important to remember that this business has a lot of moving parts, including legacy and niche businesses. Any of these can contribute to MSFT stock strength and help cushion potential downturns in other areas.

The first of these is Windows. The global PC market has received an unexpected boost during the pandemic. Remote work boosted new PC sales, reversing a decline that had lasted for years. However, in the first quarter of 2022, global PC sales fell by more than 7%. This raised red flags on Windows sales. However, Microsoft saw Windows sales increase by 11%. CEO Satya Nadella said corporate clients were adopt Windows 11 at a faster rate than any previous version. Microsoft Office sales also recorded double-digit growth in the quarter.

Xbox is gaining momentum

Another Microsoft business that is often overlooked is Xbox. Gambling is considered a niche business for the company. Its Xbox game console still seems to be eclipsed by PlayStation sales. That hasn’t changed with the Xbox Series X/S.

However, Microsoft announced some big news for Xbox in Q3. Xbox hardware revenue was up 14% year-over-year, while service revenue (including Xbox Game Pass subscriptions) also saw a gain. This brought total gaming revenue for the quarter to $3.74 billion. That’s a small percentage of the company’s total revenue of $49.4 billion for the quarter, but it shows how even overlooked divisions can contribute to growth. And during tough economic times when consumers may cut back on large purchases, subscription revenue like that generated by Xbox Game Pass is especially welcome.

Xbox sales may not move the needle much for MSFT stocks, but they’re part of the picture when it comes to business resilience.

Should you buy MSFT shares now?

In early March, I warned investors not to overlook Microsoft’s boring legacy business. The company’s third quarter results showed the importance of this reasoning when considering adding MSFT stocks to your portfolio. The company’s cloud services did the heavy lifting, but enterprise customers installing Windows 11 at a record pace accounted for a big chunk of the company’s revenue and profit. The metaverse and its possibilities offer opportunities for future growth, but this old-school Xbox game console division recorded its highest sales in 11 years.

The MSFT stock obtains a “B” rating in portfolio binder. Of the investment analysts surveyed by the the wall street journal, MSFT is a consensus “buy”. Their average price target of $361.99 suggests an upside of around 28%.

There is no way to say with certainty that the current volatility in the economy and market will not continue to negatively impact MSFT. That being said, the company’s third quarter results prove that it can continue to deliver under difficult conditions. If you’re looking for an investment that will provide long-term growth, you won’t go wrong buying Microsoft stock.

As of the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier has held (neither directly nor indirectly) any other position in the securities mentioned in this article. The InvestorPlace research staff member primarily responsible for this article has not held (directly or indirectly) any position in the securities mentioned in this article.

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