Is Microsoft Stock a Good Buy After Q2 Earnings? 📈

Our Substack: https://www.overlookedalpha.com<br /><br />Microsoft just reported second quarter earnings. Revenue increased 2% to 52.7 billion year over year while net income decreased 12% to 16.4 billion. <br /><br />Based on the latest share price Microsoft has a market cap of 1.8 trillion. With 100 billion of cash and 44 billion of long term debt the enterprise value is roughly 1.74 trillion.<br /><br />Revenue over the last 12 months is 204 billion with net income of 67 billion and 9 dollars earnings per share. <br /><br />That gives the company an expensive valuation of 8.5 times revenue or 27 times earnings. <br /><br />Historical revenue growth, meanwhile, is clocking 11% over the past ten years and EPS growth is roughly 18%. <br /><br />Breaking out the earnings report you can see that the real bright spot is Microsoft cloud. Cloud revenue was up 22% to 27.1 billion meaning cloud run rate revenues are now over $100 billion a year and the most important part of Microsoft's business.<br /><br />But again, we are seeing deceleration in some areas.<br /><br />And here’s an interesting chart which shows how slowing growth has been gradually spreading across segments over the last few quarters.<br /><br />None of this is surprising, of course. Microsoft is exposed to higher operating costs like almost everyone else so it will face the same pressures on growth. <br /><br />On the plus side, the company has a staggering amount of cash and its invested at least 10 billion in OpenAI, the company behind Chat GPT. This is no doubt a smart move and could help the business gain market share in online search and cloud computing.<br /><br />But, trading at the multiple of 8 times revenue and 27 times earnings, Microsoft is already pricing in a significant amount of growth.<br /><br />#stocks #investing #microsoftstock #valueinvesting