Microsoft Corporation logo on phone-by rafapress via Shuterstock
Microsoft’s (MSFT) latest round of layoffs recently made headlines, with the tech giant planning to cut its global workforce by 9,000 “to implement organizational changes necessary to best position the company and teams for success in a dynamic marketplace,” according to a company spokesperson.
This round of layoffs adds to those in January, May, and June of this year. Reading between the lines, many investors believe artificial intelligence is responsible for the Microsoft job cuts as the company continues to invest in the revolutionary technology.
Investors could therefore see the layoffs as a strategic move by Microsoft to further enhance its AI capabilities by investing some or all of the savings from these layoffs. With rivals like Meta (META) and Google (GOOGL) strengthening their AI teams by poaching top talent, Microsoft could use these savings along with its healthy cash reserves to explore elite hires.
Still unsure about Microsoft? Here are some reasons to consider investing in the stock here.
Microsoft’s status as one of the most valuable companies globally is largely due to its ongoing innovation and consistent growth in revenue and earnings. Over the past ten years, Microsoft has reported revenue and earnings compound annual growth rates (CAGRs) of 11% and 17%, respectively. This growth has been accompanied by a 965% surge in MSFT stock.
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Beyond its remarkable growth, the company has a strong track record of exceeding expectations in its quarterly performance.
In its most recent reported quarter, Microsoft reported revenues of $70.1 billion, a 13.3% increase year-over-year. Net earnings also grew robustly, rising 17.7% to $3.46 per share, surpassing analyst expectations of $3.22 per share. The main driver of revenue growth was its services division, which rose from $44.8 billion in the same quarter last year to $54.7 billion.
Its operational cash flow also reflects this strength, increasing to $37 billion from $32 billion in the previous year. Microsoft ended the quarter with cash reserves of $28.8 billion and no short-term debt, demonstrating sound fiscal discipline and liquidity.
Story Continues
As Microsoft prepares to report fiscal Q4 earnings on July 29, analysts expect EPS of $3.35, representing 13.6% annual growth. For the full year, analysts expect EPS of $13.36, up 13% year-over-year.
In a recent article for Barchart, I highlighted why tech-focused analyst Dan Ives from Wedbush is so bullish on Microsoft.
Microsoft has established Azure at the center of global enterprise AI adoption. Azure’s strategic importance keeps increasing, serving as a key factor in the overall momentum of the business. The 20% rise in Microsoft Cloud revenue, which has now reached $42.4 billion, is evidence of this trend and highlights the robustness of its cloud ecosystem.
Meanwhile, Microsoft’s search business, though often overlooked, is changing significantly. By working with OpenAI, the company is redesigning how users engage with search tools. Its goal is to keep users on the platform longer. Bing’s strategy emphasizes showing the most relevant links based on user input. Microsoft uses AI to select and rank these results more accurately, making them more specific for targeted queries. This method not only improves user satisfaction but also boosts ad visibility, which increases revenue from each search.
Analysts generally rate MSFT a “Strong Buy” with a mean target price of $528.88, implying about 6.5% upside from current levels. Among 46 analysts, 37 recommend a “Strong Buy,” five suggest a “Moderate Buy,” and four rate it a “Hold.”
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On the date of publication, Pathikrit Bose did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com