Why Microsoft Is the Worst Dow Jones Stock After Earnings

Microsoft Corp. signage in New York, US, on Friday, October 25, 2024 — (Image credit: Jeenah Moon/Bloomberg via Getty Images)

Microsoft (MSFT) is the worst Dow Jones stock Thursday after the tech giant beat top- and bottom-line expectations for its fiscal 2025 first quarter but issued an outlook for its second quarter that failed to impress Wall Street.

In the three months ended September 30, Microsoft's revenue increased 16% year over year to $65.6 billion, boosted by 22% growth in Microsoft Cloud revenue to $38.9 billion. Meanwhile, its earnings per share (EPS) rose 10.4% from the year-ago period to $3.30.

"Artificial intelligence-driven transformation is changing work, work artifacts, and workflow across every role, function, and business process," said Microsoft CEO Satya Nadella in a statement. "We are expanding our opportunity and winning new customers as we help them apply our AI platforms and tools to drive new growth and operating leverage."

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Microsoft's results came in ahead of analysts' expectations. Wall Street was anticipating revenue of $64.5 billion and earnings of $3.10 per share, according to CNBC.

However, sentiment turned negative toward Microsoft when it provided its second-quarter outlook for the fiscal year. Specifically, MSFT said it expects revenue in the range of $68.1 billion to $69.1 billion, which came up short of the $69.8 billion in revenue analysts are guiding for.

Is Microsoft stock a buy, sell or hold?

Microsoft has lagged the broader market in recent months and is now up 15% for the year to date on a total return basis (price change plus dividends). This compares to the S&P 500's 23% gain. But Wall Street's all-in on the blue chip stock for the long haul, and for good reason considering MSFT's impressive 20-year return.

According to S&P Global Market Intelligence, the average analyst target price for MSFT stock is $501.99, representing implied upside of more than 20% to current levels. Additionally, the consensus recommendation is Strong Buy.

Financial services firm Wedbush is one of the most bullish outfits on MSFT stock with a Buy rating and $550 price target.

"In a nutshell, we come away from this quarter more bullish (not less) after seeing this AI growth and Copilot monetization play out in real time for Microsoft," says Wedbush analyst Daniel Ives. "The bears will try to split hairs on any number but ultimately this is a tech stalwart in major growth mode... and we see no signs of slowing down based on our checks and these impressive results and outlook that give us any pause in our bullish thesis."

Ives adds that "we would be strong buyers of MSFT" following this post-earnings weakness.

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Joey Solitro is a freelance financial journalist at Kiplinger with more than a decade of experience. A longtime equity analyst, Joey has covered a range of industries for media outlets including The Motley Fool, Seeking Alpha, Market Realist, and TipRanks. Joey holds a bachelor's degree in business administration.