Tech titan Microsoft (MSFT) has long been a major player in the technology industry. With a strong portfolio of customer-favorite products, the company has solidified its foundation. It's no surprise that its stock has returned 895% to shareholders in the last decade.

With its diverse portfolio consisting of software, hardware, and cloud computing services, the company has demonstrated robust revenue growth quarter after quarter. Its recent third-quarter fiscal 2024 earnings are a testament to its extraordinary growth story. Both revenue and earnings outperformed analysts’ expectations. 

Microsoft has a high target price of $600, implying a potential 50% gain over the next 12 months. Given the strength of artificial intelligence (AI)-driven products, I believe Microsoft will be able to meet this target. 

Valued at $2.98 trillion, the stock has gained 6.5% year-to-date, keeping pace with the tech-heavy Nasdaq Composite’s ($NASX)performance.

Cloud Is The Driving Force Behind Microsoft

Aside from its legacy products, Microsoft's cloud computing platform, Azure, has been extremely beneficial to the company. After integrating AI into Azure, the cloud has been a driving force in Microsoft's growth.

Azure has emerged as a formidable competitor in the cloud services market, standing toe-to-toe with industry giants like Amazon’s(AMZN) AWS (Amazon Web Services).

In the third quarter of fiscal 2024, Microsoft Cloud revenue increased 23% year on year to $35.1 billion. Microsoft operates in three business segments. Revenue in the Intelligent Cloud segment increased by 21% to $26.7 billion. The segment's operating income increased 32% to $12.5 billion. Productivity and Business Processes segment revenue increased by 11.7%, while the More Personal Computing segment, which had been struggling for the previous few quarters, saw its revenue increase by 17.4% in Q3. 

The Intelligent Cloud segment alone accounted for 43% of Microsoft's total revenue of $61.8 billion, up 17% from the same quarter last year. Adjusted earnings per share rose 20% to $2.94 per share. 

Microsoft has now incorporated AI into all of its flagship products, in addition to launching new AI products. During the Q1 earnings call, CEO Satya Nadella stated, "Bing reached over 140 million daily active users."

Outlook for Q4

Microsoft expects revenue from the Productivity and Business Processes segment to increase by 9% to 11% in the fourth quarter, from $19.9 billion to $20.2 billion. 

Furthermore, revenue from the Intelligent Cloud segment could rise by 19% to 20% to $28.4 billion to $28.7 billion, thanks to Azure AI's expected 30% to 31% growth in Q4. Similarly, the More Personal Computing segment's revenue could increase by 10% to 13%. 

On the balance sheet, the company reported $80 billion in cash, cash equivalents, and short-term investments, along with $42.6 billion in long-term debt. The company generated $21 billion in free cash flow (FCF). This hefty FCF balance allowed Microsoft to pay $8.4 billion in the form of share repurchases and dividends. 

Analysts predict 15.5% and 20.4% growth in revenue and earnings for the fiscal year 2024, respectively. 

Currently, Microsoft is priced at 34 times forward fiscal 2024 earnings and 12 times forward sales. While the valuation may seem relatively high, Microsoft’s dominant position and the long-term growth prospects of AI may justify the premium. 

What Does Wall Street Say About Microsoft Stock?

Following MSFT's outstanding Q3 results, Bank of America Securities analyst Bradley Sills reiterated his "buy" rating and price target of $480. Sills is impressed with the cloud's capabilities and sees long-term AI-driven growth potential. According to the analyst, "The overall strength in Azure is deemed sufficient to propel Microsoft's total revenue growth, and the investment in cloud infrastructure is viewed as justified by the significant opportunities in AI." 

Furthermore, RBC Capital maintained its "buy" rating and $450 price target.

Wall Street has an overall “strong buy” rating. Out of the 37 analysts in coverage, 33 rate MSFT stock a “strong buy,” three rate it a “moderate buy,” and one rates it a “hold.” The average target price for MSFT stock is $460, which is 14.8% above current levels. Plus, its Street-high estimate of $600 implies an upside potential of 49.7% over the next 12 months.

Is It Too Late To Buy This AI Stock?

The other tech titans, like Amazon and Alphabet (GOOGL), are equally impressive AI stocks to buy now. Nonetheless, Microsoft has a competitive advantage due to its first-mover advantage in AI, its legacy portfolio, visionary leadership, industry experience, outstanding AI offerings, and strategic partnerships, which should continue to boost its earnings. 

Microsoft, without a doubt, is one of the best AI stocks to buy now and hold forever.