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Microsoft Corporation (MSFT): Should You Buy MSFT Stock Following Its Latest Earnings Beat?

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Microsoft Corporation (NASDAQ:MSFT) delivered a strong Q2 earnings with the stock reaching new all-time highs. Is MSFT stock a buy now?

Redmond, Washington-based Microsoft Corporation (NASDAQ:MSFT) reported its Q2 2017 earnings on January 26th, delivering a third consecutive earnings beat. In fact, the software giant has missed earnings estimates only once in the last 10 quarters, while beating on the revenue front in all. Microsoft reported an EPS of $0.83 on revenues of $26.07B, topping analysts estimates for EPS of $0.78 on revenues of $25.28B.

The best part is that Microsoft has continued the trend of revenue growth, though marginal, in Q2 as well. The tech behemoth had returned to revenue growth in Q1 2017 after five previous quarters of negative revenue growth. Clearly, an indication that Microsoft is slowly making the much-anticipated turnaround. MSFT stock was up 2.35% after earnings release and has gained almost 5% YTD hinting at a distinct sense of bullish sentiment. So, should you buy MSFT stock now? Let’s take a closer look.

Microsoft Corporation (NASDAQ:MSFT), sign, building, logo, congress, symbol

drserg / Shutterstock.com

Microsoft posted strong Q2 earnings with EPS and revenue growth of 9.2% and 2.2% respectively, on a YoY basis. Net income also registered decent growth increasing 6% to $6.5B from $6.1B in the year-ago quarter. However, the highlight was free cash flows growing by 20.5% YoY to $4.3B. All these factors propelled MSFT stock to its all-time highs. In fact, Microsoft crossed a market cap of $500B (1) after 17 years, as reported by Reuters, due to sustained bullish sentiment and a strong earnings report.

Cloud Driving Microsoft’s Growth Engine

In the December quarter, for the first time, Microsoft’s commercial cloud run rate exceeded $14B. Microsoft’s Productivity and Business Processes segment which consists of Office commercial and consumer products, Dynamics products and cloud services grew 10% YoY to $7.4B. Server products, cloud services, enterprise services and Azure contributed to the company’s Intelligent Cloud segment to post $6.9B in revenue, growing 8% YoY. Azure remains to be the star performer with revenues growing 93% YoY while Office 365 commercial revenue registered strong 49% growth. In the latest quarter alone, Office 365 consumer subscribers jumped by 1M to reach 24.9M.

Microsoft Corporation (NASDAQ:MSFT) is the second biggest player in the public cloud market after Amazon.com, Inc. (NASDAQ:AMZN)’s AWS and if you go by AWS’ success, Microsoft has a big opportunity ahead of it. While referring to Azure during the earnings call, Satya Nadella, CEO, Microsoft stated:

“Across industries, we continue to see strong customer demand for our differentiated cloud solutions. Azure revenue grew 95% in constant currency this quarter. Azure premium revenue grew triple digits for the 10th consecutive quarter, and more than three out of four Azure customers are using Premium services.”

With so much potential in Azure, Microsoft is well positioned to ride the cloud growth wave ahead. It also seems Microsoft is well on course to achieve CEO Satya Nadella’s April 2015 pledge (2) of $20B in annualized cloud revenue by 2018.

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