Microsoft (MSFT +0.66%) investors can get overly focused on one magnificent number: $3 trillion. That's the software giant's market capitalization right now, which marks a huge increase from the less than $1 trillion market cap the company held just five years ago.
Don't forget that this phenomenal success was powered by the solid business wins that Microsoft has achieved in recent years, including establishing itself as an early leader in the artificial intelligence (AI) arms race.
The company's recent earnings report continued that winning streak, likely putting shareholders in position for more market beating gains ahead. Let's take a closer look.
1. Cloud and Azure services up 31%
Microsoft is building a truly massive software-as-a-service business. Sales this quarter touched $62 billion, or nearly double the level that fellow "Magnificent Seven" stock Meta Platforms achieved. That was good for a 17% boost year over year.
NASDAQ: MSFT
Key Data Points
Microsoft is also generating concrete sales success from AI, whereas peers' gains here are still theoretical. Bringing the tech into its popular Azure platform has been especially impactful, helping the Azure business expand at a 31% rate this quarter. Executives say nearly 70% of the Fortune 500 are paying for the cloud-based service. "The number of Azure AI customers continues to grow -- and average spend continues to increase," CEO Satya Nadella said in a late-April conference call.
2. Operating income rose by $5.2 billion
Microsoft added to its already impressive earnings power as operating income grew by $5.2 billion to $27.6 billion. That 23% spike was enough to push profitability up to 44.5% of sales from 42.9% a year ago. Microsoft generated more than $100 billion of operating profit in the past full year. For perspective, that earnings figure is higher than the market capitalization of all but the top 100 companies in the S&P 500.
3. Profit margin up to 45%
Who says a large company can't quickly boost its earnings power? Microsoft's software-as-a-service selling model has been lifting profitability higher, with no signs of a slowdown ahead.
Operating profit margin has climbed to 45% of sales over the last nine months, up from 41% a year ago. That's enough to make Microsoft the second-most-profitable Magnificent Seven stock, trailing only Nvidia.
4. Cash returns up to $8.4 billion
Microsoft isn't known for being an especially strong dividend stock. Its yield is only 0.8% and management is interested in spending aggressively in these early innings of the AI boom.
Yet there's still a flood of cash returns heading investors' way. Microsoft sent $8.4 billion to its shareholders, or nearly $3 billion per month. That cash was split about evenly between stock buybacks and dividend payments, and investors can expect both return avenues to keep climbing if Microsoft can continue boosting its earnings power.
5. Attractive valuation of 13 times sales
Microsoft stock isn't cheap, as you might expect. You'll have to pay nearly 13 times sales for this business, which is near a three-year high. That valuation is on the pricey end even among the Magnificent Seven stocks that have powered the market's rally in the past year. The next-closest member of that club, Meta Platforms, is priced at about 8 times sales. Nvidia is the only member that's valued above Microsoft at a whopping 35 times sales.
Growth investors might still consider owning the software titan at this elevated price. A great strategy for getting into a rallying stock like this is to buy small pieces over time. Breaking your investment up -- say, into three purchases -- can reduce the risk that you'll buy at a top just before the stock drops.
In any case, owning Microsoft over the next five to 10 years will likely pay off for patient investors. That's true even if you're paying a modest premium to own this highly successful business.
