Microsoft: On Cloud Nine

Microsoft: On Cloud Nine

Microsoft unveiled their Q3 2024 results last week. Revenue for the quarter reached $61.9 billion, marking a 17% year-over-year increase. Meanwhile, net income for the same period amounted to $21.9 billion, reflecting a 20% year-over-year rise. The primary growth driver for Microsoft’s revenue was their cloud services segment, encompassing products and services such as OneDrive and Azure. Cloud services revenue for the quarter totalled $35.1 billion, increasing by 23% year-over-year. As of Friday, 26 April, Microsoft held the title of the world’s most valued stock, boasting a valuation of just over $3 trillion.

Microsoft has been among the beneficiaries of the Large Language Model hype that surged last year and this year. Microsoft has invested approximately $13 billion in OpenAI, the creator of ChatGPT. Microsoft does not have any ownership stake in OpenAI. But, they are entitled to a share of profit distributions. Microsoft’s cloud service, Azure, enables businesses to deploy their AI applications using their servers. However, Microsoft has stated that the demand for their AI services currently surpasses their current capacity. Consequently, they are ramping up their capital expenditure. In the latest quarter, they spent $14 billion on capital expenditure, exceeding the anticipated $11 billion.

Microsoft encounters formidable competition from other well-resourced rivals such as Amazon and Alphabet in the cloud computing/AI arena. As companies expand, scaling their market share becomes progressively challenging compared to their initial growth trajectory. Frequently, firms seeking to increase their market presence through acquisitions find themselves paying a premium to entice shareholders. Recently, Microsoft concluded its acquisition of the gaming giant Activision for just under $70 billion. Only time will reveal whether Microsoft has potentially overpaid for the company, or whether they were able to use their platform to create a more compelling gaming experience for users.

Microsoft not only provides cloud and gaming services, it’s Office suite of business tools is widely used in businesses and homes worldwide, it also provides on-line security, data management, virtual meeting services (Teams) and search services, amongst others.

Microsoft and Amazon held in the Lunar BCI Worldwide Flexible Fund and by Lunar Capital’s Offshore Portfolio clients.

Key Indicators
Index / Fund / Rate
Start of Year
Last Week
This Week
% Change YTD
Index / Fund / Rate
Start of Year
188.33
Last Week
199.38
This Week
198.44
% Change YTD
5.37% Lunar Capital increasesymbol
Index / Fund / Rate
JSE ALSI
Start of Year
76 893
Last Week
73 364
This Week
75 371 Lunar Capital increasesymbol
% Change YTD
-1.98% Lunar Capital stocktake arrow down
Index / Fund / Rate
NASDAQ Composite
Start of Year
15 011
Last Week
15 282
This Week
15 928 Lunar Capital increasesymbol
% Change YTD
6.11% Lunar Capital increasesymbol
Index / Fund / Rate
S&P 500
Start of Year
4 770
Last Week
4 967
This Week
5 100 Lunar Capital increasesymbol
% Change YTD
6.92% Lunar Capital increasesymbol
Index / Fund / Rate
Prime Lending Rate
Start of Year
11.75%
Last Week
11.75%
This Week
11.75%
% Change YTD
0.00%
Index / Fund / Rate
USD/ZAR
Start of Year
18.30
Last Week
19.14
This Week
18.81 Lunar Capital stocktake arrow down
% Change YTD
2.79% Lunar Capital increasesymbol
Index / Fund / Rate
EUR/ZAR
Start of Year
20.17
Last Week
20.41
This Week
20.12 Lunar Capital stocktake arrow down
% Change YTD
-0.25% Lunar Capital stocktake arrow down
Index / Fund / Rate
Brent Crude ($'barrel)
Start of Year
76.97
Last Week
87.14
This Week
89.29 Lunar Capital increasesymbol
% Change YTD
16.01% Lunar Capital increasesymbol
Source: Iress

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Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
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The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

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