Microsoft Corporation Q3 FY6/25 Earnings Review
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Read It And Weep, Losers
Look, we can argue all day long about trade policy and its impact on the economy now and in the future, and somewhere in there we may find the truth, once we all find out what trade policy actually is ie. what the prevailing level of tariffs with whom turns out to be. We can talk about the psychological impact of the uncertainty upon capital allocation decisions within real companies doing real things and also within asset management shops. That’s fun too. But another way of getting to reality is … read some earnings reports.
I confess that a lot of the time it is fairly dull work plowing through press releases and SEC filings and earnings call transcripts and blah. But sometimes, just sometimes, it is positively a sparkling way to spend your time, and that’s because (1) US GAAP and (2) fiduciary rules which together means (3) if you are a big public US company you cannot fib all that much about your past or potential future numbers. And that means that by reading the earnings reports published by the largest companies in the US, you can get a pretty good read on how reality is from the perspective of those companies. That doesn’t cover how Bob’s Hardware Store is doing in downtown Wichita, KS, but since the number of drill bits that Bob sells next week doesn’t really matter to the economy, the big earnings reports remain a useful proxy for what is really going on vs. what the narrative peddlers on all sides would like you to think is going on.
Microsoft earnings were a blowout. Growth accelerated and they guided for further acceleration. Cashflow margins dropped a point but that’s primarily a function of working capital seasonality from what I can see. The balance sheet garnered even more money, as if that were possible.
Oh yes and the order book is worth $315bn and is growing at 30%. Think about that for a while next time someone promotes the R-word.
Official rating for earnings - doubleplusgood.
Let’s take a closer look. Headlines first then the good stuff after the paywall.
Financial Fundamentals
Valuation Analysis
Not expensive for the fundamentals, in my view.
Stock Chart
You can open a full page version of this chart, here.
Price target $474-563; a wide range I know, but let’s see if we are currently in the final Wave 5 up of this cycle (in which case the lower end of that range applies) or still in a Wave 3 (in which case the higher end). Anyway, I think there is meaningful upside from here.
We rate the stock at Hold.
Alex King, Cestrian Capital Research, Inc - 1 May 2025.