As Cloud Revenue Soars, Is It Time to Buy Microsoft Stock?

Once again, Microsoft (NASDAQ: MSFT) delivered a strong quarter, driven by its cloud computing segment and growing adoption of Copilot. And for once, the stock surged higher on the news. However, it is still trading down year-to-date and off more than 10% over the past year.

Let's take a closer look at the company's fiscal Q4 results to see if its rally can continue.

Image source: The Motley Fool.

Azure growth continues

Microsoft's cloud computing unit, Azure, once powered its growth, with revenue soaring 43% year over year. It was the 12th straight quarter in which Azure revenue rose by 30% or more, and it surpassed $100 billion for the fiscal year. Demand continues to outstrip capacity, and Azure revenue is projected to accelerate to 45% constant-currency growth in Q1.

Bookings rose 10% and were up 18% when excluding OpenAI. Remaining performance obligations (RPOs), which include future Azure commitments, surged 84% year over year to $678 billion. The company said about 30% of these commitments will be recognized as revenue over the next 12 months. Notably, it said all of the sequential growth it saw came from non-AI model companies.

Microsoft's total revenue rose 18% year over year to $90 billion, while adjusted earnings per share (EPS) increased 23% to $4.74. The results topped the analyst consensus for $87.62 billion in revenue and $4.24 in adjusted EPS, as compiled by LSEG.

Overall "intelligent cloud" revenue, which includes Azure and GitHub, climbed by 32% year over year to $39.3 billion. The company introduced a usage-based pricing model for GitHub Copilot in the quarter, which helped drive a 60% sequential increase in GitHub Copilot revenue and seat expansion.

Microsoft's productivity and business processes segment, home to Microsoft 365 and LinkedIn, saw revenue climb 14% year over year to $37.8 billion. Growth was solid across its four main solutions in the segment (in the table), led by a 24% jump in Microsoft 365 Consumer cloud revenue, helped by an earlier price increase. Meanwhile, it said paid Microsoft 365 Copilot seats reached 30 million, with net adds doubling quarter over quarter.

Data source: Microsoft press release. YOY = Year over year.

Revenue in its "more personal computing" segment, where Windows and Xbox reside, decreased by 4% year over year to $12.9 billion. Its search and news advertising business saw solid growth, with revenue up 10%. Windows OEM and device revenue, meanwhile, fell by 7%, while Xbox revenue dropped 10%. Windows was hurt by lower PC demand, which is expected to continue given high component costs.

Looking ahead, management projects fiscal 2027 Q1 revenue between $89.85 billion and $90.95 billion, representing 16% growth at the midpoint. This is despite the company expecting significant pressure in the PC market. This was well above the $89.66 billion in revenue expected by analysts.

Can Microsoft stock continue to rally?

There wasn't much difference between Microsoft's results this quarter and its prior fiscal 2026 quarter, although the stock reaction was certainly much different. The company continues to see strong Azure growth, while Copilot adoption continues to pick up.

While investors have worried about the impact of AI on Microsoft's software business, the company continues to see momentum, suggesting it's likely to play a major role as an AI applications layer, given how deeply embedded Microsoft 365 and its programs are in the enterprise space. Meanwhile, Azure has been a huge growth engine, and its future commitments point to continued strong cloud computing growth.

With a forward price-to-earnings (P/E) ratio of below 23.5 based on fiscal 2027 analyst estimates (ending June 2027), Microsoft's stock is still attractively valued even after its post-earnings surge. With sentiment starting to shift, I think the stock has solid upside ahead over the coming years.

Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends London Stock Exchange Group Plc. The Motley Fool has a disclosure policy.