What’s Next For Microsoft Stock After An Upbeat Fiscal Q3?

Microsoft (NASDAQ: MSFT) recently reported its fiscal Q3 2025 results (fiscal year ends in June), with revenues and earnings exceeding the street estimates. The company reported revenue of $70.1 billion and earnings of $3.46 per share, compared to the consensus estimates of $68.4 billion and $3.22, respectively. The company continued to benefit from increasing sales of Azure cloud computing services. Moreover, Microsoft’s fourth-quarter outlook exceeded the street expectations, which contributed to the stock’s upward movement following the earnings release. We believe that MSFT still possesses further growth potential despite its recent gains.

Despite a 6% decline year-to-date (as of April 30th), Microsoft’s (MSFT) stock performance has been slightly better than the broader NASDAQ index, which has fallen by 10%. We anticipate that Microsoft will experience a comparatively lesser impact from the current tariff situation compared to many other technology companies – a resilience that was reflected in the company’s positive outlook. But, if you are looking for an upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P and clocked >91% returns since inception.

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How Did Microsoft Fare In Q3?

Microsoft’s revenue of $70.1 billion in Q1 was up 13% y-o-y. Looking at segments, Productivity and Business Processes sales were up 10% to $29.9 billion, driven by higher sales of Microsoft 365 products and LinkedIn solutions. Intelligent Cloud segment revenue was up 21% to $26.8 billion, led by Azure and other cloud offerings. Lastly, More Personal Computing sales were up 6% at $13.4 billion, led by growth in Windows OEM and devices and higher gaming sales. Microsoft saw revenues from Azure and cloud services grow by 33%. Not only did the company see higher sales, but its operating margin also expanded by 110 bps y-o-y to 45.7%. Higher revenues, clubbed with margin expansion, resulted in earnings of $3.46 per share, up 18% y-o-y.

Looking forward, Microsoft expects its Q4 revenue to be around $73.7, higher than the consensus estimate of $72.3 billion. This takes into account a 34% to 35% growth in Azure, versus 31% anticipated.

What Does This Mean For MSFT Stock?

A solid Q3 and an upbeat outlook sat well with investors, and MSFT stock surged 7% in after-hours trading. But, if we look at a slightly longer time frame, the increase in MSFT stock over the last four-year period has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 52% in 2021, -28% in 2022, 58% in 2023, and 13% in 2024.

In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment around tariffs and trade wars, could MSFT face a similar situation as it did in 2022 and 2024 and underperform the S&P over the next 12 months, or will it see a strong jump? Despite its recent rise, we think MSFT stock has more room for growth. We estimate Microsoft’s Valuation to be $500 per share, suggesting a potential upside of approximately 18% from its current after-hours trading price of $423. This forecast is based on a price-to-earnings (P/E) ratio of 39x, applied to the trailing twelve-month earnings per share of $12.94. Although the current P/E ratio of 39x is higher than the stock’s four-year average of 35x, we believe this elevated valuation is justified by the expected earnings growth fueled by the increasing contributions from its Cloud business.

While MSFT stock looks like it has more room for growth, it is helpful to see how Microsoft’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

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