Microsoft’s stock (NASDAQ: MSFT) has gained roughly 28% YTD as compared to the 9% rise in the S&P500 index over the same period. Further, at its current price of $307 per share, it is trading slightly above its fair value of $302 – Trefis’ estimate for Microsoft’s valuation. The technology giant outperformed the street expectations in the third quarter of FY2023 (FY July-June). It posted a 7% y-o-y improvement in total revenues to $52.9 billion, driven by an 11% growth in productivity & business processes and a 16% increase in the intelligent cloud units. The productivity & business process segment mainly benefited from growth in office commercial products and LinkedIn businesses. On a similar note, intelligent cloud division revenues were driven by growth in Azure and other cloud services. That said, the more personal computing unit reported a 9% y-o-y drop because of lower Windows OEM and devices revenues. Overall, the net income rose by 9% y-o-y to $18.3 billion in the quarter.
The company’s top line increased 6% y-o-y to $155.72 billion in the first three quarters of FY 2023. It was due to a 9% rise in productivity & business process revenues, followed by an 18% growth in the intelligent cloud unit, partially offset by a 10% reduction in the more personal computing category. On the cost front, the operating expenses witnessed an unfavorable increase due to higher research & development and general & administrative costs. It reduced the operating margin from 42.9% to 41.3%. In addition, an increase in the provision for income taxes further reduced the profitability. Altogether, the net income decreased 7% y-o-y to $52.3 billion.
Moving forward, the firm expects to record $54.85-$55.85 billion in revenues in Q4. All in all, Microsoft revenues are forecast to touch $208.7 billion in FY2023. Further, MSFT’s net income margin is likely to see a slight dip. It will likely result in a net income of $72.41 billion and an annual EPS of $9.72. This coupled with a P/E multiple of 31x will lead to a valuation of $302.
|S&P 500 Return||0%||9%||86%|
|Trefis Multi-Strategy Portfolio||0%||9%||243%|
 Month-to-date and year-to-date as of 5/1/2023
 Cumulative total returns since the end of 2016