Microsoft Stock Before Q1 Earnings: Buy Now or Wait for Results?

Microsoft MSFT is set to report first-quarter fiscal 2025 results on Oct. 30.The Zacks Consensus Estimate for revenues is pegged at $64.41 billion, indicating growth of 14% from the figure reported in the year-ago quarter.The consensus mark for earnings has moved south by a penny to $3.08 per share over the past 30 days, suggesting 3% year-over-year growth.Image Source: Zacks Investment ResearchFind the latest earnings estimates and surprises on Zacks Earnings Calendar.Earnings Surprise HistoryIn the last reported quarter, the company delivered an earnings surprise of 1.72%. The company’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 6.34%.Microsoft Corporation Price and EPS Surprise Microsoft Corporation price-eps-surprise | Microsoft Corporation QuoteEarnings WhispersOur proven model does not conclusively predict an earnings beat for Microsoft this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. This is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.MSFT has an Earnings ESP of -0.74% and a Zacks Rank #3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.Factors Shaping Upcoming ResultsMicrosoft's performance in the first quarter of 2024 is expected to have been robust, primarily driven by its Intelligent Cloud and Productivity and Business Processes segments. The company's strategic focus on cloud services, particularly Azure and the Office 365 suite, is likely to have contributed significantly to top-line growth.In the Intelligent Cloud segment, the company anticipates revenues between $28.6 billion and $28.9 billion. Our model estimate for this segment is pegged at $28.69 billion, indicating growth of 18.3% from the figure reported in the year-ago quarter. For Azure, Microsoft expects revenue growth in the range of 28-29% at cc. Microsoft's Azure platform is spearheading the company's AI-driven growth strategy.A key factor in Microsoft's growth strategy has been Teams, its enterprise communication platform. Teams has been expanding its customer base and feature set, effectively competing against rivals like Zoom. The platform's growth is closely tied to the rising popularity of hybrid and flexible work models. Microsoft anticipates its Productivity and Business Processes segment to generate revenues between $20.3 billion and $20.6 billion. Our model estimate is pegged at $20.34 billion, indicating an increase of 9.4% year over year.This growth is underpinned by strong performance across various product lines. Office 365 Commercial is expected to see revenue growth of approximately 14% at constant currency (cc), which is in line with our model estimate. However, traditional Office Commercial products are projected to experience a decline in the mid-to-high teens range, highlighting the ongoing shift from on-premise to cloud-based solutions.The company's diversified portfolio continues to show promise, with Office Consumer products and cloud services expected to achieve revenue growth in the low-to-mid single digits. LinkedIn is projected to achieve low-to-mid single-digit growth.Dynamics 365, Microsoft's enterprise resource planning and customer relationship management platform, is another steady performer, with the company projecting revenue growth in the low-to-mid teens. For the More Personal Computing segment, the company projects revenues between $14.9 billion and $15.3 billion. Revenues from Windows are likely to have been driven by slow yet steady traction seen in Windows Commercial products and cloud services growth amid slow personal computer (PC) demand.According to the preliminary results from the International Data Corporation (IDC) Worldwide Quarterly Personal Computing Device Tracker, worldwide shipments reached 68.8 million units in the third quarter of 2024, representing a year-over-year decline of 2.4%. Factors such as rising costs and inventory replenishment led to a surge in shipments in the previous quarter, resulting in a slightly slower sales cycle.Among other major PC vendors, Lenovo LNVGY and Hewlett Packard HPE registered an increase in shipments. Lenovo's shipments increased 3% year over year to 16.5 million units, while HPE's shipments grew 0.4% year over year to 13.6 million units. Meanwhile, Dell Technologies DELL registered a 4% year-over-year decline in shipments, reaching 9.8 million units.Microsoft expects Windows OEM revenues to remain relatively flat year over year. In the Gaming segment, MSFT expects revenue growth in the low to mid-30s, including roughly 40 points of net impact from the Activision acquisition. Furthermore, Microsoft anticipates Xbox content and services revenue growth in the low-to-mid 50s range.Price Performance & ValuationShares of MSFT have returned 12.9% year to date compared with the broader Zacks Computer & Technology sector’s growth of 25.3%. Shares of DELL, HPE and AAPL have gained 57.6%, 14.3% and 19.8%, respectively.MSFT Underperforms Sector, PeersImage Source: Zacks Investment ResearchNow, let’s look at the value Microsoft offers investors at current levels. MSFT is trading at a premium with a forward 12-month P/S of 10.91X compared with the Zacks Computer - Software industry’s 7.71X and higher than the median of 10.17X, reflecting a stretched valuation.MSFT’s P/S F12M Ratio Depicts Stretched ValuationImage Source: Zacks Investment ResearchInvestment ThesisMicrosoft presents a strong investment case with its dominant position in cloud computing (Azure) and productivity software (Office 365), driving consistent revenue growth. The company's strategic focus on AI integration and partnerships, like with OpenAI, positions it at the forefront of technological innovation. Microsoft's diversified portfolio, including gaming (Xbox) and professional networking (LinkedIn), provides stability and multiple growth avenues. However, potential challenges include intense competition in the cloud market, particularly from Amazon and Google, and the cyclical nature of enterprise IT spending. Regulatory scrutiny over market dominance and data privacy concerns pose additional risks. Despite these challenges, Microsoft's strong balance sheet, consistent cash flow and history of shareholder returns through dividends and buybacks make it an attractive option for investors seeking a balance of growth and stability in the tech sector.Final ThoughtsMicrosoft's strong performance in productivity and collaboration offerings is expected to drive substantial growth in the fiscal first quarter of 2025 despite a premium valuation and fierce competition in the cloud market. The company's strategic focus on cloud services, AI integration, and innovative product development has positioned it favorably in the competitive market. Maintaining a position in Microsoft appears prudent at present. Investors looking to buy the stock should, however, wait for a better entry point.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.7% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Microsoft Corporation (MSFT): Free Stock Analysis Report Dell Technologies Inc. (DELL): Free Stock Analysis Report Lenovo Group Ltd. (LNVGY): Free Stock Analysis Report Hewlett Packard Enterprise Company (HPE): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks