Perhaps some investors wrote off the company too soon.
Perhaps some investors wrote off the company too soon.
Microsoft (MSFT -1.80%) has had a challenging past 12 months, as many investors think that artificial intelligence (AI) will displace the services that many software corporations, including Microsoft, provide. However, the tech giant has roared back over the past three months.
During the third quarter of the calendar year, the company's shares gained almost 38%, its best quarterly performance since 1998. It would have been nice to buy Microsoft's shares three months ago, before its third-quarter run, but is there any more upside from current levels? Let's find out.
Why Microsoft bounced back
Microsoft stock hit a fresh 52-week low around late June. About a month later, the company released its fourth-quarter update for its fiscal year 2026, which ended on June 30. Microsoft's results were excellent, coming up ahead of analyst estimates.
The company's revenue increased by 18% year over year to $90 billion. Microsoft's operating income jumped 18% year over year to $40.6 billion, while its non-GAAP earnings per share came in at $4.74, 23% higher than the year-ago period. Microsoft's strong performance was largely due to its AI and cloud computing businesses, which helped dispel fears that the company's services would eventually lose out to AI.
Quite the opposite is happening. Microsoft is capitalizing on AI by launching tools that cater to its clients. That includes AI agents that automate tasks and boost the productivity of the businesses that depend on Microsoft's tools in their day-to-day activities.
Of course, Microsoft offers plenty of cloud services beyond AI. During the company's fourth quarter, revenue from Microsoft Azure (its cloud computing platform) grew 43% year over year. Azure sales exceeded $100 billion during Microsoft's fiscal year 2026 for the first time. Microsoft's entire cloud business -- including Azure and other segments -- posted $59.3 billion in revenue during the company's Q4, up 27% year over year.
The company ended the quarter with $678 billion in cloud commercial remaining performance obligations, up 84% year over year. So, it isn't just that Microsoft performed well. The company's massive backlog signals sustained demand for its cloud services, and that's great news for the company's medium-term prospects. That's why Microsoft's shares have been rebounding.
What the future may hold
Averytin News Financial update.