Microsoft's Azure Driving Cloud Growth: What's the Path Ahead?

Microsoft MSFT is leveraging Azure to drive cloud growth, with more than 70  Azure regions available worldwide and 400+ data centers globally. The company plans to invest $80 billion in developing AI-enabled data centers across the globe. In the third quarter of fiscal 2025, Microsoft spent $16.7 billion on developing cloud and AI infrastructure, including data centers, servers and networking hardware.

The growing adoption of Azure has been driving the Intelligent Cloud segment growth, which reported revenues of $26.8 billion in the third quarter of fiscal 2025, marking a 21% year-over-year increase. Azure and other cloud services revenues surged 33% year over year.

Microsoft plans to spend $3 billion in India over the next two years to expand Azure’s cloud and AI infrastructure and develop new data centers in the country. This is expected to accelerate cloud adoption and consumption, directly contributing to top-line growth.

For the fourth quarter of fiscal 2025, Intelligent Cloud is expected to deliver revenues in the $28.75-$29.05 billion range, up 20-22% in cc, driven by 34-35% revenue growth in Azure.

The Zacks Consensus Estimate for MSFT’s fourth-quarter fiscal 2025 Intelligent Cloud segment revenues is pegged at $28.9 billion, indicating a 1.5% year-over-year increase.

Microsoft Faces Stiff Competition in Cloud

Microsoft is facing stiff competition from Alphabet GOOGL and Oracle ORCL.

Alphabet’s cloud arm, Google Cloud, is investing heavily in cloud computing. The integration of NVIDIA’s B200 and GB200 Blackwell GPUs into Google Cloud’s infrastructure enhances efficiency in training AI models, supporting enterprise demands and driving cloud consumption. Per our model, Alphabet’s Google Cloud revenues are expected to witness a CAGR of 15.8% between 2024 and 2027.

Although a much smaller competitor compared with MSFT, Oracle expects continued growth in cloud revenues, projecting 26-30% growth in the first quarter of 2026. The company’s Oracle 23 AI database efficiently delivers enterprise data securely to models, and Oracle plans to go live in 47 more such cloud regions. ORCL’s latest partnership with xAI to run its Grok models in the Oracle Cloud Infrastructure is expected to revolutionize enterprise AI in the cloud.

MSFT’s Share Price Performance, Valuation and Estimates

MSFT shares have returned 18.1% in the year-to-date period, outperforming the Zacks Computer – Software industry and the Zacks Computer and Technology sector’s growth of 17% and 7.9%, respectively.

MSFT's YTD Price Performance

From a valuation standpoint, MSFT stock is currently trading at a forward 12-month Price/Sales ratio of 11.79X compared with the industry’s 8.81X. MSFT has a Value Score of D.

MSFT's Valuation

The Zacks Consensus Estimate for MSFT’s fiscal 2025 earnings is pegged at $13.36 per share, which has remained steady over the past 30 days. The estimate indicates 13.22% year-over-year growth.

Microsoft Corporation Price and Consensus

Microsoft Corporation price-consensus-chart | Microsoft Corporation Quote

Microsoft currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

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This article originally published on Zacks Investment Research (zacks.com).

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