Microsoft: Q1 FY25 Results Show Value Still Compounding
Company Update (MSFT US) (Buy): Shares have fallen 10%+ since July, even as double-digit growth continues in all key metrics.
Highlights
Revenue, EBIT and Net Income all grew 10%+ in Q1 FY25
Consistent growth in recurring enterprise-focused revenues.
Management comments point to strong Q2 and rest of FY25.
High CapEx, but based on high future demand and can be cut.
At $410.37, we see 46% upside (15.5% p.a.) by June 2027. Buy.
Introduction
We review our Buy rating on Microsoft after Q1 FY25 (July-September) results were released after market close last Wednesday (October 30); shares fell 6.1% the day after and have only recovered slightly since. This means the share price has fallen by 10%+ from its July peak, even though it remains ~15% higher than a year ago:
MSFT Share Price (Last 1 Year)
Source: Google Finance (04-Nov-24).
Microsoft has been a top-5 position in our “Select 15” model portfolio since its inception at the start of 2023, and we first published our research on Microsoft online with a Buy rating in December 2020. We have also held Microsoft shares continuously in real life since 2014, having first bought at ~$37. We published our last article on Microsoft in July 2024.
We believe the value of Microsoft shares will continue to compound over multiple years. Growth rates have continued to be double digits, though they may be more volatile in the coming quarters. High current CapEx is a concern for many investors, but should be seen in the context of potential future revenue and long-term asset value.
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