Is Microsoft Stock Still Worth Buying? A Closer Look at Azure’s Impact

Microsoft’s stock has been on an impressive upward trajectory over the past few years, largely thanks to the stellar performance of its cloud computing division, Azure. For many UK investors keeping an eye on tech giants, Microsoft remains a key player, and its success with Azure has been a major factor driving the stock’s rise.

Azure, which is Microsoft’s answer to cloud computing, has consistently delivered robust growth, with quarter-after-quarter increases often exceeding 20%. It’s no surprise that many see Azure as the backbone of Microsoft’s future success. The cloud computing market itself is booming, offering companies the ability to scale their operations without the massive upfront costs associated with traditional IT infrastructure. This trend has positioned Azure as a critical component of Microsoft’s overall strategy.

However, there’s a catch. Despite Azure’s success, the focus on this single division has led to some concerns about Microsoft stock’s current valuation. With the stock trading at 31 times forward earnings, it’s no longer the bargain it once was. While the overall business is solid, some investors are questioning whether the price tag is justified, especially considering that Microsoft’s revenue growth, when excluding recent acquisitions like Activision Blizzard, is respectable but not extraordinary.

Cloud computing is undoubtedly a sector with massive growth potential. Industry reports suggest the market could expand from its current size of around $680 billion to an eye-watering $1.44 trillion by 2029. Microsoft, sitting comfortably in second place in terms of market share, is well-positioned to capitalise on this growth. But is that enough to justify the current stock price?

One issue to consider is that while Azure’s growth is impressive, it could lead to a decrease in Microsoft’s overall profit margins. Azure’s operating margin might end up lower than Microsoft’s current companywide margin, which could impact long-term profitability.

For UK investors considering whether to buy Microsoft stock now, the question is whether the current price is justified or if there might be better opportunities down the line. With tech stocks experiencing a sell-off recently, Microsoft’s stock has become cheaper, but at 31 times forward earnings, it’s still not what many would consider a bargain.

In summary, while Azure’s growth story is compelling, and Microsoft remains a robust business, some caution is warranted. The stock’s valuation is high, and while there’s no denying Microsoft’s potential, waiting for a more attractive entry point might be the wiser move.

For a deeper look into the cloud computing market and Microsoft’s role, visit Gartner’s report on cloud computing trends.