Microsoft's Q3 Fiscal 2025 Earnings Preview: Expectations vs Reality

Microsoft is set to report Q3 fiscal 2025 results soon, with strong cloud growth expected despite mixed segment performance. Investors should consider holding positions or waiting for a better entry point around earnings release.

Date: 26-04-2025

AI Rating: 6

**Earnings Preview for Microsoft**: Microsoft is on the brink of releasing its third-quarter fiscal 2025 earnings, and several indicators could significantly impact its stock price. The Zacks Consensus Estimate projects revenues at $68.38 billion, reflecting an impressive 10.55% growth year-over-year, which is a positive signal for valuations and investor sentiment.

The earnings forecast stands at $3.20 per share, suggesting an 8.84% year-over-year increase. This steady growth aligns with investor expectations and indicates that Microsoft's significant push in the cloud and productivity sectors is paying off. Recently, Microsoft achieved an earnings surprise of 3.86%, and it has historically beaten the Zacks Consensus Estimate in previous quarters. This may lend credibility to expectations of continued, albeit moderate, growth.

**Revenue Growth Across Segments**: Microsoft's diversity in revenue streams also bodes well. The company expects the Productivity and Business Processes segment to grow between 8.9% year-over-year, thanks to strong performances from Office 365 and other cloud offerings. Furthermore, the Intelligent Cloud segment is projected to be a key growth driver, anticipating 17.7% growth, highlighting Azure's critical role in Microsoft's strategy.

However, while there are strong growth projections for core businesses, investors should be aware of potential headwinds. The 'More Personal Computing' segment appears less favorable, with only 1.3% revenue growth expected. Notably, Windows OEM revenues are projected to decline, reflecting sluggish demand in the PC market, a critical area for Microsoft.

Despite a premium valuation, trading at a forward 12-month P/S of 9.49X against the industry average of 7.94X, it remains crucial for investors to assess how current valuations align with the overall market climate and segment trends.

With a mixed outlook, current conditions suggest a tepid approach, where investors are vying for the right moment to enter. Therefore, holding positions or waiting for volatility around the earnings announcement could be a prudent strategy.

Stocks: MSFT LNVGY HPE DELL