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Microsoft (MSFT Quick QuoteMSFT - Free Report) has seen its stock price climb 18.9% year to date, outpacing the Zacks Computer Software industry and S&P 500 index, which have returned 15.2% and 14.7%, respectively. This impressive performance can be largely attributed to the company's strong positioning in two key areas cloud computing and artificial intelligence (AI).

MSFT projects a 15.2% net sales increase for fiscal 2024 that showcases the strength of its cloud-centric strategy. Intelligent Cloud, which includes Azure, server products and enterprise services, generated a robust $26.7 billion in revenues, in the fiscal third quarter, marking a 21% year-over-year increase.

For the fiscal fourth quarter, Microsoft expects Intelligent Cloud revenues between $28.4 billion and $28.7 billion. Our model estimate for Intelligent Cloud revenues is currently pegged at $28.5 billion, indicating 19% growth from the figure reported in the year-ago quarter.

Looking forward, we expect cloud services and AI innovations to remain a key growth driver for Microsoft.

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Azure continues to be a major growth driver, demonstrating the sustained demand for cloud services across industries. In the third quarter of fiscal 2024, Azure and other cloud services revenues grew 31% year over year (up 31% at cc), including roughly 7 points from AI services.

In the global cloud infrastructure market, Azure has solidified its position as the second-largest provider, reaching a record 25% market share in the first quarter of 2024, according to Synergy Research Group. This narrows the gap with market leader Amazon (AMZN Quick QuoteAMZN - Free Report) -owned Amazon Web Services (31%) while outpacing Alphabet (GOOGL Quick QuoteGOOGL - Free Report) -owned Google Cloud (11%). The "Big Three" now control 67% of the expanding cloud sector. Azure Arc, Microsoft's hybrid cloud offering, has been a key differentiator among competitor offerings. It allows its customers DICKS Sporting Goods and World Bank to run Azure services across on-premises, multi-cloud, and edge environments. Arc now has 33,000 customers, up more than twofold year over year.

MSFTs strategy of developing industry-specific cloud solutions, such as Azure for Healthcare and Azure for Financial Services, has proven effective in penetrating key verticals.

Microsoft has become the hyperscale platform of choice for SAP and Oracle workloads, with Conduent and Medline moving their on-premises Oracle estates to Azure, and Kyndryl and LOreal migrating their SAP workloads to Azure.

Beyond Azure, Microsoft's cloud dominance extends to its analytics platform, Microsoft Fabric, which has attracted over 11,000 paid customers. The integration of Fabric with Azure AI Studio and Power BI showcases Microsoft's comprehensive approach to cloud services, now serving more than 350,000 paid customers across its ecosystem.

As digital transformation accelerates and demand for AI, machine learning and secure cloud solutions grows, Microsoft's Azure platform is well-positioned to capitalize on these trends, driving continued growth and innovation in the cloud computing space. In Azure, MSFT expects revenue growth at cc between 30% and 31% for the fourth quarter of fiscal 2024.

Microsoft's Azure platform is spearheading the company's AI-driven growth strategy. The integration of OpenAI's GPT-4 into Bing and Edge showcases Azure's capabilities in delivering advanced AI experiences.

The Azure OpenAI Service has become a pivotal tool for developers, facilitating the incorporation of generative AI across diverse applications. The collaboration with OpenAI on an advanced data center project further cements Azure's position as a leader in AI infrastructure.

In the fiscal third quarter, the company reported impressive adoption of Azure AI, boasting over 53,000 customers, with more than a third being new to Azure in the past year. More than 65% of the Fortune 500 now use Azure OpenAI Service. MSFT continues to innovate and partner broadly to bring customers the best selection of frontier models and open-source models, including large language models and small language models.

More than half of Azure AI customers use the companys data and analytics tools. Customers are building intelligent applications running on Azure PostgreSQL and Cosmos DB, with deep integrations with Azure AI.

Microsoft's launch of AI-powered copilot templates for retailers demonstrates Azure's versatility in creating industry-specific solutions. These developments highlight Azure's central role in Microsoft's AI strategy, driving innovation and market expansion.

Given the promising long-term prospects, maintaining a position in Microsoft, which has a Zacks Rank #3 (Hold) appears prudent at present. You can see the complete list of todays Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for MSFTs fiscal 2024 revenues is pegged at $244.41 billion, indicating 15.3% growth year over year. The consensus mark for earnings per share is pegged at $11.77, which has moved up by a penny in the past 60 days, indicating 20% growth year over year.

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Moreover, MSFT is trading at a premium with a forward 12-month P/S of 13.59X compared with the industrys 9.42X and higher than the median of 11X, reflecting a stretched valuation.

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Hence, investors looking to buy the stock should rather wait for a better entry point.

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Microsoft (MSFT) Up 18.9% YTD on Cloud Strength: Time to Buy? - Zacks Investment Research