MSFT failed on both sales and profitability in the fourth quarter of fiscal 2022. That disheartening news, provided by the business after the market closed on Tuesday, appeared to corroborate the bearish trend that has been weighing on the IT industry since late last year.
However, MSFTâ€™s stock jumped 5% on Wednesday, reflecting a more optimistic view. The fundamentals driving that market reaction may suggest that now is a good moment for investors to consider adding some MSFT stock to their portfolios, as well as some of its peers.
It was an unusual blunder for the corporation. In the fiscal fourth quarter that ended June 30, MSFTâ€™s sales climbed by 12% to $51.9 billion. Wall Street had predicted an additional $500 million.
Notably, the strong dollar hurt its overseas revenues; on a constant-currency basis, revenue increased by 16%. Similarly, net income increased only 2% to $16.7 billion, falling short of estimates by around 3%. A 17% increase in revenue expenses and a 20% increase in research and development expenditures had a significant impact on net income.
However, management forecasted a double-digit percentage increase in sales and profitability in both constant currency and US dollars in fiscal 2023 forecasts released during the conference call.
That more optimistic view seemed to offset the impact of the profit and sales disappointments, which explains why the stock jumped after the news.
The study also highlights the continued prominence of non-consumer technology. Despite a drop in overall sales, MSFT’s Azure revenue climbed by 40% and intelligent cloud remained the company’s largest and fastest-growing category. Furthermore, cloud services are typically cost-effective for the businesses that employ them. As a result, even if the economy enters a recession, the cloud sector is expected to protect MSFT from the impact of a drop in consumer spending.
In the midst of this bear market, MSFT has a price-to-earnings ratio of 28, a near two-year low. While it is not the cheapest cloud stock out there, it is far less expensive than cloud rival Amazon, which trades at 57 times earnings.
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