ii view: AI demand supports Microsoft's reassuring sales forecast
Focused on Cloud data and AI provision, and with a foot in the corporate door via its Windows operating software. Buy, sell, or hold?
1st May 2025 11:38
by Keith Bowman from interactive investor

Third-quarter results to 31 March
- Revenue up 13% to $70.1 billion year-over-year
- Net income up 18% to $25.8 billion
- Earnings per share (EPS) up 18% to $3.46
- Returned $9.7 billion to shareholders, unchanged from Q3
Chief Executive Satya Nadella said:
“Cloud and AI are the essential inputs for every business to expand output, reduce costs, and accelerate growth.
“From AI infra and platforms to apps, we are innovating across the stack to deliver for our customers.”
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ii round-up:
Microsoft Corp (NASDAQ:MSFT) reported sales and profit that beat Wall Street forecasts, with the maker of Windows software outlining reassuring forecasts despite concerns about an economic slowdown triggered by US trade tariffs.
Sales in the third quarter to late March rose 13% to $70.1 billion, fuelling earnings growth of 18% year-over-year to $3.46 per share. That beat estimates of $68.4 billion and $3.22 per share respectively.
Driven by ongoing demand for AI data, current fourth-quarter sales to late June are forecast by Microsoft to come in at up to $74.25 billion. Analysts had forecast $72.3 billion.
Shares in the Dow Jones and Nasdaq 100 company rose 7% in post results US trading having come into these latest numbers down by a similar amount year-to-date. That’s much the same as Facebook owner Meta Platforms Inc Class A (NASDAQ:META) and the Nasdaq 100 index itself in 2025.
Microsoft’s capital expenditure, or investment for the quarter totalled $21.4 billion as it continued to spend on datacentres and expensive Nvidia supplied AI computer chips to host software for customers.
Group capital expenditure over the financial year ahead is expected to total around $80 billion. Revenues generated by Microsoft’s intelligent cloud data business, increasingly hosting AI related software, rose 21% during this latest quarter to $26.8 billion.
Users of the group’s own AI backed GitHub Copilot software development tool totalled 15 million as of late March, four times more than a year ago.
Elsewhere, revenue at its Productivity and Business Processes division, including Windows and Office software, climbed 10% to $29.9 billion.
Sales for the group’s Personal Computing division rose 6% to $13.4 billion, aided by an 8% rise in revenues for Xbox content and services.
Broker Morgan Stanley reiterated its ‘overweight’ stance on Microsoft shares following the news, increasing its fair value estimate to $482 per share from a previous $472. Fourth-quarter results are likely late July.
ii view:
Started in 1975, Microsoft today employs over 220,000 people. Headquartered in Redmond, Washington, Intelligent Cloud generated its biggest slice of revenues over its last financial year at 43%. That was followed by Productivity and Business Processes at 32%, and Personal Computing the balance of 25%. Geographically, its home US market accounts for most sales at 51% with the balance of 49% spread globally and including the UK.
For investors, the building of datacentres in the US to host AI software will likely involve the importing of products from overseas, which may now prove subject to US trade tariffs. Supply constraints for items to build datacentres were previously highlighted. Competition to host AI software on datacentre servers for corporations is intense, with Google owner Alphabet Inc Class A (NASDAQ:GOOGL), AWS owner Amazon.com Inc (NASDAQ:AMZN), International Business Machines Corp (NYSE:IBM) and Oracle Corp (NYSE:ORCL) all fighting hard. A forecast price earnings (PE) ratio above the 10-year average may suggest the shares are not obviously cheap.
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To the upside, group investment in AI related infrastructure and provision is ongoing. A working relationship with AI software provider ChatGPT sits alongside its own GitHub Copilot offering. Microsoft’s domination of corporate software via Windows and Office keeps its foot in the door to sell other services such as cloud and security provision, while both product and geographical diversity exist.
In all, and despite ongoing risks, a consensus analyst estimate of fair value above $485 per share and with current earnings growth justifying the valuation, investors are likely to remain long-term supportive of this well managed global tech titan.
Positives:
- Windows operating system holds a dominant market position
- Growing cloud business
Negatives:
- Uncertain economic outlook
- Political concern remains regarding the size and power of tech companies
The average rating of stock market analysts:
Buy
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