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Microsoft Rides AI and Cloud Wave, Partners with Samsung for VR Push

AInvestMonday, Aug 12, 2024 4:02 am ET
2min read
As of last week, Microsoft (MSFT) saw a 0.83% increase, marking a two-day rally with a cumulative gain of 1.90%. Over the past week, however, the stock has dipped 0.6%. Year-to-date, Microsoft has climbed 8.4%, with a current market capitalization of $3.017 trillion.

Microsoft's recent fiscal year 2024 Q4 and full-year results align closely with market expectations, though there was a minor miss in its cloud segment. The company reported revenues of $245.1 billion, a year-over-year increase of 16%, slightly above market consensus. Operating profit stood at $109.4 billion, surpassing the anticipated $108.4 billion. Net profit, however, was $881 billion, just below expectations. Capital expenditures (CAPEX) were recorded at $44.5 billion, slightly higher than projected.

In terms of segmented performance, the Productivity and Business Processes unit brought in $77.728 billion, a 12.2% increase year-over-year. The More Personal Computing division reported revenues of $62.032 billion, marking a 13.3% rise. The Intelligent Cloud segment generated $105.362 billion, a 19.9% growth, although slightly below expectations. Azure's annual revenue growth for fiscal year 2024 was 30%, with Q4 alone registering a 29% increase.

Constraints such as macroeconomic conditions and a shortage in cloud infrastructure have limited Azure's growth. Primarily, the cloud infrastructure supply shortfall, especially in AI infrastructure, and a sluggish European economy contributed to this underperformance. The company anticipates a 28% growth in Azure revenue for the upcoming quarter, expecting sequential acceleration. Increased future CAPEX investments are projected to address these capacity issues, potentially boosting cloud segment growth.

AI remains a critical growth driver for Microsoft. The company's AI capabilities are primarily tied to Azure OpenAI and machine learning initiatives. Although AI revenues are currently modest, their contribution to Azure's growth is increasing significantly. Azure AI boasts over 60,000 users as of Q2 this year, reflecting a 60% year-over-year growth. The number of Machine-as-a-Service (MaaS) customers has more than doubled. Copilot, an AI feature in Office, also shows significant uptake, with a 60% increase in user numbers.

Looking ahead, analysts expect Microsoft’s FY2025-2027 revenues to be $278.373 billion, $319.751 billion, and $365.705 billion respectively, indicating annual growth rates of 13.6%, 14.9%, and 14.4%. Net profits are anticipated at $98.076 billion, $112.378 billion, and $128.524 billion, translating to growth rates of 11.3%, 14.6%, and 14.4%. Analysts maintain a "buy" rating, driven by strong performance in AI and cloud segments.

Shifting to consumer technology, a recent report from Korea indicates that Microsoft has struck a deal with Samsung, which will supply Micro OLED panels for Microsoft's forthcoming virtual reality devices. This marks a renewed push by Microsoft into the consumer VR space. Microsoft's decision to order hundreds of thousands of Micro OLED panels from Samsung aligns with its broader strategy to incorporate high-resolution, high-brightness displays in its VR headsets.

Interestingly, despite Samsung’s plans to release its own VR headset using Sony’s Micro OLED panels, it has decided to partner with Microsoft for this venture. This development offers significant potential benefits for Samsung Display, getting a substantial leg up amidst internal competition.

Furthermore, game development is also a key area of focus for Microsoft. Recently, game developer Bluehole announced the acquisition of Tango Gameworks and its popular IPs from Microsoft. This acquisition follows Microsoft's May announcement to shut down Tango Gameworks. Bluehole plans to collaborate with Xbox and ZeniMax to ensure a smooth transition.

Microsoft’s Q4 fiscal year 2024 results also highlighted its commitment to gaming. Despite a 42% drop in Xbox hardware sales, the company reiterated its focus on expanding its content and services. CEO Satya Nadella emphasized that the investment in gaming aims to provide beloved games to users, irrespective of their platform. CFO Amy Hood also pointed out that Microsoft’s strategy is to broaden the reach of its game IPs, using both traditional and innovative distribution channels.

In summary, Microsoft is strategically positioning itself to leverage AI, cloud services, and gaming, driving robust long-term growth. The company is also enhancing its hardware capabilities through partnerships, all while managing to navigate the complexities tied to macroeconomic factors and infrastructure constraints.
Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.