Is Microsoft Stock a Buy After Its Q3 Earnings Beat?

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Louis Navellier and the InvestorPlace Research Staff

Sun, May 1, 2022, 4:00 AM 4 min read

Since reporting Q3 earnings on Tuesday, Microsoft (MSFT) stock is up nearly 5%.
Microsoft has shown it can still deliver double-digit revenue growth despite volatile economic conditions and slowing PC sales.
It’s a little more expensive today than earlier in the week, but MSFT stock is still down 15% in 2022 and a buying opportunity for growth investors.

The Microsoft logo outside a building representing MSFT stock.

Source: Asif Islam / Shutterstock.com

After a decade of virtually uninterrupted growth, Microsoft (NASDAQ:MSFT) stock ran into a brick wall in 2022. It’s not alone. Many tech stocks have been in the dumps this year. Investor fears over economic issues, war and continued supply chain challenges have led to high-growth stocks like those in the tech sector being passed over in favor of safer choices.

On Tuesday, Microsoft reported its third-quarter results for fiscal 2022. Amid concerns over falling PC sales (after the sector experienced a growth wave during the pandemic), Microsoft delivered strong results. Revenue of $49.4 billion was up 18% year-over-year. Diluted earnings-per-share of $2.22 was up 9%. Both EPS and revenue beat analyst expectations.

In the two days since reporting Q3 earnings, MSFT stock has rallied by nearly 5%. However, it remains down over 15% since the start of the year. The company’s strong performance combined with the current discounted rate mean it’s a great time for long-term growth investors to buy Microsoft stock.

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Ticker	Company	Current Price
MSFT	Microsoft	$283.54

Windows 11 Is Killing It

The headline story from Microsoft’s third quarter is its cloud computing efforts. Microsoft Cloud revenue was up 32% YoY. The $23.4 billion in sales it generated was nearly half of the company’s total revenue for the quarter. The company’s Azure cloud computing unit saw its revenue increase 46%.

There is no disputing the critical importance of cloud computing to Microsoft — both now and in the future. However, I want to touch on two other areas where the company reported unexpected growth. These are important as a reminder that this company has a lot of moving pieces, including legacy and niche businesses. Any one of these can contribute to MSFT stock’s strength and help buffer against potential slowdowns in other areas.

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The first of these is Windows. The global PC market received an unexpected boost during the pandemic. Remote work drove new PC sales, reversing a decline that had been going on for years. However, in the first quarter of 2022, global PC sales shrank by over 7%. That raised red flags over Windows sales. However, Microsoft saw Windows sales grow 11%. CEO Satya Nadella said enterprise customers were adopting Windows 11 at a higher rate than any previous release. Microsoft Office sales also posted double-digit growth for the quarter.

Xbox Is Gaining Momentum

Another Microsoft business that is frequently overlooked is Xbox. Gaming is considered a bit of a niche business for the company. Its Xbox game console seems to always be eclipsed by PlayStation sales. That hasn’t changed with the Xbox Series X/S.

However, Microsoft reported big news for Xbox in Q3. Xbox hardware revenue was up 14% YoY while services revenue (including Xbox Game Pass subscriptions) also posted a gain. That brought the total gaming revenue for the quarter to $3.74 billion. That’s a small percentage of the company’s total $49.4 billion in revenue for the quarter, but it shows how even overlooked divisions can contribute to growth. And during tough economic times when consumers may cut big-ticket purchases, subscription revenue like that generated by Xbox Game Pass is especially welcome.

Xbox sales may not move the needle in a big way for MSFT stock, but they’re a part of the picture when it comes to the resilience of the company.

Should You Buy MSFT Stock Now?

At the start of March, I cautioned investors not to overlook Microsoft’s boring legacy businesses. The company’s Q3 earnings showed the importance of that line of reasoning when considering adding MSFT stock to your portfolio. The company’s cloud services did the heavy lifting, but having Windows 11 being installed by enterprise customers at a record pace was a big part of the company’s revenue and earnings beat. The metaverse and its possibilities offer future growth opportunities, but that old-school Xbox game console division reported its highest sales in 11 years.

MSFT stock earns a “B” rating in Portfolio Grader. Among the investment analysts polled by the Wall Street Journal, MSFT is a consensus “buy.” Their average price target of $361.99 suggests roughly 28% upside.

There’s no way to say for certain that ongoing economic and market volatility won’t continue to have a negative impact on MSFT. That being said, the company’s Q3 earnings prove that it can continue to deliver in challenging conditions. If you’re looking for an investment that is going to deliver long-term growth, you’re not going to go wrong buying Microsoft stock.

On the date of publication, Louis Navellier had a long position in MSFT. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.