Azure's Growth Rate Bounces Back in Q3. Is Microsoft's Stock Due for a Rally?
Key Points
Microsoft's growth was better than expected last quarter, particularly in Azure.
The company forecasts its Azure business will continue to grow between 39% and 40%.
The stock has been rallying recently, but its overall performance since the start of the year remains disappointing.
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Shares of Microsoft (NASDAQ: MSFT) have been doing poorly this year as investors have become concerned about both its high valuation and a slowing growth rate in its cloud business, Azure. With all eyes on heightened artificial intelligence (AI) expenditure, expectations may be high that Azure should be flourishing. And with that not proving to be the case when the company posted its earnings numbers back in January, the stock proceeded to crash.
Microsoft recently released its latest quarterly numbers, which told a different story and showed Azure's growth rate coming in better than what analysts expected. Could this be the catalyst the stock needs to go on a prolonged rally?
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Azure's growth gets back to 40%
Last week, Microsoft reported its latest earnings numbers, covering the first three months of 2026, which came in a bit better than expected, particularly when it comes to Azure. That segment, which also includes other cloud services, rose by 40% for the quarter, which is better than the roughly 39% that analysts were expecting. Last quarter, the growth rate was 39%, and concerns of a slowdown in that area of its operations were a big reason investors were concerned about the tech stock.
Going forward, the company expects its growth rate in Azure to range between 39% and 40%, which is also better than the 37% that analysts expect. Overall, there were plenty of encouraging numbers from the recent quarter to suggest that the company was doing well in not only Azure but its overall operations, as Microsoft reported a beat on not just Azure but its top and bottom lines as well.
Is Microsoft's stock likely heading higher this year?
Microsoft's stock hasn't been surging due to its recent earnings numbers, but it has been rallying in recent weeks, with investors starting to recognize the value the stock possesses. In the past month, it's up 12%, but it remains down 14% since the start of the year. At 25 times trailing earnings, its price-to-earnings multiple is in line with the S&P 500 average. For a top tech stock with significant exposure to AI, it may still be a good buy at its current valuation.
I wouldn't be surprised to see the stock rally from here on out, as Microsoft is one of the safer tech stocks to own, with terrific opportunities in AI. As a long-term investment, it's an excellent stock to simply put in your portfolio and hang on to for years.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
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