【Earnings Summary】microsoft exceeded expectations with increased revenue and profit, Azure cloud also performing well.

Market reaction after earnings announcement: rose 4.4% in after-hours trading on April 25th.
・The benefits of introducing OpenAI's AI technology into our own products were also evident in this quarter's financial results.
・In addition to the overall strength of the main business units, the revenue from the cloud business, Azure, and other cloud services, which are gaining attention, increased by 31% compared to the same period last year (AI services contributed to 7 points of growth), exceeding market expectations of 29% growth.
・Expansion of AI products and services continues.

★ Guidance is also better than expected.
・ 4Q (April-June) guidance: Revenue from Azure & other cloud services is expected to increase by 30-31% compared to the same period last year (market forecast 29% increase).
・ In the fiscal year ending June 2025, double-digit revenue and operating profit growth are expected, with the operating margin projected to decrease by only 1 point compared to the previous year, taking into account significant investments in cloud and AI.

★Key comments from management
・ Our AI innovation continues to be built on a strategic partnership with OpenAI. Currently, over 65% of Fortune 500 companies are using Azure OpenAI, a cloud service that provides access to OpenAI's latest technology.
Azure has regained share from competitors once again. An increase in revenue due to migration to Azure is also observed. The number of Azure transactions over 0.1 billion dollars has increased by over 80% compared to the same period last year, and the number of transactions over 10 million dollars has more than doubled.
Windows Copilot is currently available on 0.225 billion Windows 10 and Windows 11 PCs, doubling compared to the same period last year.

Change in target stock price
Compared to the target stock price before the earnings report, the target stock price on April 26 increased by 0.6%.

Positive comments are prominent from Wall Street.
・Bloomberg Intelligence: The growth of the cloud suggests that customers are choosing expansive workloads despite the uncertain economic situation. The contribution of AI services to growth may be larger than expected.
・Barclays: In recent days, there has been nervousness ahead of the earnings, but the strong Azure numbers and earnings that significantly exceed consensus have confirmed a positive equity story.
・Hargreaves Lansdown: Microsoft's significant AI investments have driven the profits of its strong cloud business. And the important message is that Microsoft may continue to be the biggest beneficiary of long-term AI demand compared to its industry peers.

★ Steadily moving towards the next growth stage with Generated AI
The massive investment in OpenAI, which developed ChatGPT that sparked Generated AI, can be said to be Microsoft's best investment for the next growth stage. The benefits of incorporating OpenAI's AI technology into its own products were evident in this earnings report.

The expansion of AI products and services continues, supporting future business growth. While there may not be a sense of undervaluation on a valuation basis at present, the earnings content has provided a sense of reassurance as a suitable stock for medium to long-term holding.