Will Microsoft's AI Services Help Maintain Its Cloud Growth Momentum?

Microsoft MSFT has been expanding its Azure platform and AI services to support the growing demand for intelligent tools and automation. The company continues to integrate AI into its offerings. These offerings are built on Azure infrastructure and help organizations create and deploy their own AI agents. In the third quarter of fiscal 2025, over 10,000 organizations had used Agent Service, and more than 1 million custom agents were created across Microsoft platforms, up 130% quarter over quarter. Microsoft also processed more than 100 trillion tokens in the quarter, up 5 times year over year.Recently, Microsoft introduced the MU language model, which now powers the new AI agent in Windows 11 Settings. The agent allows users to interact with system settings using natural language. The technology, which is powered by Azure AI, shows how Microsoft is using its AI services to power real-world features across its ecosystem.The launch of the MU model and its integration into Windows is expected to increase usage of Azure’s AI tools and services. As more users and organizations adopt these agent-based features, Azure cloud consumption is likely to rise. This supports Microsoft’s ongoing focus on bringing AI into mainstream productivity and enterprise workflows.In the third quarter of fiscal 2025, Microsoft’s Intelligent Cloud segment generated $26.8 billion in revenues, up 21% year over year. It accounted for 37.9% of MSFT’s total revenues. Azure and other cloud services grew 33%, with AI services contributing 16 percentage points to that growth. Our model estimate for the Intelligent Cloud segment’s revenues in fiscal 2025 is pegged at $105.3 billion, indicating 20.4% growth year over year.MSFT Faces Stiff Competition in the Agentic AI SpaceMicrosoft is facing tough competition from Amazon AMZN and Alphabet GOOGL, ramping up agentic AI efforts.Amazon’s AWS is making it easier to build agentic AI with tools like Agents for Bedrock, AWS App Studio and Amazon Q that help developers create AI agents that work across apps and data. With built-in support for orchestration and reasoning, Amazon’s AWS is becoming a strong platform for next-gen AI tools.Alphabet’s Google Cloud is pushing into agentic AI with tools like Agent Builder. With built-in orchestration and support for Gemini models, Alphabet is making agent development faster and more accessible for real-world use.MSFT’s Share Price Performance, Valuation and EstimatesMSFT shares have gained 17.7% in the year-to-date (YTD) period, outperforming the Zacks Computer – Software industry and the Zacks Computer and Technology sector’s growth of 13.5% and 4.5%, respectively.MSFT’s YTD Price PerformanceImage Source: Zacks Investment ResearchFrom a valuation standpoint, MSFT stock is currently trading at a forward 12-month Price/Sales ratio of 11.70X compared with the industry’s 9.59X. MSFT has a Value Score of D.MSFT ValuationImage Source: Zacks Investment ResearchThe Zacks Consensus Estimate for fourth-quarter fiscal 2025 earnings is pegged at $3.35 per share, which has remained steady over the past 30 days, indicating 13.56% year-over-year growth.Microsoft Corporation Price and Consensus Microsoft Corporation price-consensus-chart | Microsoft Corporation QuoteThe consensus mark for 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 currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. Research Chief Names "Single Best Pick to Double"From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Amazon.com, Inc. (AMZN): Free Stock Analysis Report Microsoft Corporation (MSFT): Free Stock Analysis Report Alphabet Inc. (GOOGL): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks