Microsoft Q3 - Strong set of numbers

On Tuesday night, Microsoft released a strong set of results, beating analyst estimates for revenue and profit. Frustratingly, on a day when the Nasdaq closed firmly higher, Microsoft fell 1.1%. Revenue for the quarter came in at $65 billion, up 15% from a year ago, earnings per share rose 10% to $2.95, and the dividend rose 10% too. Next year, Microsoft expects to grow profits by 17%, which is impressive given its already large profit base.

The negative share price reaction was due to slightly lower guidance and because Azure grew at only 30%, instead of the forecast 31%. Given the size of Azure, and the massive forecast growth in years to come, a small miss now has an exponential impact on future profits.

Spending on AI resulted in a 78% surge in capital expenditure to $19 billion for the quarter - good news if you are an Nvidia shareholder. All that capex is well covered by cash flows, which came in at $37 billion for the 3 months.

Microsoft is a mega profit-making machine that is central to many business operations. As a result, you have to pay a premium to own the shares, currently a forward P/E of 31. With continued solid double-digit profit growth, the share price will continue to move higher.