Author: Freedom Finance Global analyst Eldar Shakenov
Analysts at Freedom Finance Global present case studies of successful and promising companies. Each article examines the key factors that led to their success or challenges faced, as well as highlighting companies with similar growth potential. The first issue focuses on the case of Microsoft, its growth prospects, and risks for investors. It also identifies companies that share a comparable potential for successful market implementation.
Microsoft as a Financially Sustainable Ecosystem
Microsoft Corp (MSFT) is one of the leading technology companies globally, continuously reshaping the future of technology. From Windows operating systems to Azure cloud services and the integration of artificial intelligence (AI) into its products, the company plays a key role in digital transformation. However, behind the impressive growth figures lies a complex world of strategies, competitive pressures, and infrastructural challenges.
Financial Results: Overview and Key Insights
In the second quarter of the 2025 fiscal year (as of 01.01.2025), Microsoft demonstrated consistent growth despite market turbulence and competitive pressures. The company's revenue reached $70 billion, a 12% increase from the previous year. Operating profit rose by 17%, reaching $31.7 billion, while the operating margin increased from 43.6% to 45.5%.
1 Dynamics of Microsoft Corp's stock during the second quarter of the 2025 fiscal year. Source: gurufocus.com
2 Diversification as a Mechanism for Sustainable Development
Microsoft is forming a product and service ecosystem that provides comprehensive solutions for clients across several key segments:
- Productivity and Business Processes (Microsoft 365, LinkedIn, Dynamics 365): revenue growth of 14%, reaching $29.4 billion, driven by the increased use of Microsoft 365 Copilot and the integration of AI into business processes.
- Intelligent Cloud (Azure, server products, enterprise services): the main growth driver, resulting in a revenue increase of 19% to $25.5 billion. Revenue from AI-based Azure services grew by 157% year-over-year, confirming the success of Microsoft's strategy in cloud technology and AI.
- Personal Computing (Windows, Xbox, Surface): revenue was $14.65 billion, maintaining stability despite a decline in demand for traditional devices and Windows software.
Thus, the company maintains a balance between mature sectors and high-tech segments, ensuring revenue diversification.
Strategic Importance of Cloud Technologies and Artificial Intelligence
Azure and AI: Foundations for Long-Term Growth
Azure is one of Microsoft's key assets, continuing to attract corporate clients. In recent years, the company has significantly expanded its cloud infrastructure, doubling data center capacity to meet demand for AI services. Annual revenue from Azure AI services reached $13 billion, demonstrating a growth of 175%.
Key achievements:
- Microsoft 365 Copilot increased its user base tenfold in the last 18 months.
- GitHub Copilot became the number one tool for developers worldwide.
- Azure OpenAI attracted over 200,000 active users in its first two months of operation.
AI integration has become a strategic direction that allows Microsoft to stand out among competitors. Azure provides flexible business solutions, enabling companies to harness the power of large language models (LLM) and customize AI applications to their needs.
Major Challenges Affecting Company Dynamics
1. Infrastructure Issues and Growth Limitations
Rapid growth has also brought certain challenges – Microsoft faced limitations in the capacity of its data centers and power shortages, which may temporarily slow expansion. These infrastructure issues create opportunities for competitors like Amazon Web Services (AWS) and Google Cloud, which are actively scaling resources.
2. High Costs of AI Development
New players, such as DeepSeek, claim to reduce the costs of developing AI models. However, examining the actual expenses for creating and maintaining AI infrastructure shows that the low development costs claimed by competitors do not account for key components, including multiple testing iterations of models, costs for specialized hardware, and long-term operational expenses. For Microsoft, significant investments in data centers and specialized computing power ensure high reliability and scalability of its solutions, strengthening the company's position as a trusted and reliable provider of cloud and AI services.
3. Risks in Traditional Segments
A slowdown in growth in non-AI areas, such as traditional Azure cloud services, may exert pressure on overall revenue levels. This is due to changes in customer behavior, as they redistribute budgets in favor of AI solutions. Microsoft is actively working to optimize its sales strategy and adapt to the new market realities.
Competitive Advantages of Microsoft:
- Deep integration of AI across all key products.
- Long-term partnerships with OpenAI.
- Diversified portfolio of clients and solutions covering a wide range of industries.
3 Dynamics of Microsoft Corp's stock compared to Alphabet Inc and Amazon.com Inc over the past year. Source: gurufocus.com
Long-Term Prospects
Despite short-term challenges, Microsoft's long-term outlook remains positive. The company is actively investing in AI, expanding partnership programs, and focusing on improving operational efficiency.
Key Catalysts:
- Expansion of Microsoft 365 Copilot and Azure OpenAI functionalities. These solutions enable clients to integrate AI into business processes and enhance productivity.
- Growth of the corporate segment. Microsoft is actively attracting large clients, increasing its competitiveness.
- Optimization of capital expenditures. Gradually reducing infrastructure costs will help the company improve profitability in the long term.
Financial Stability
The corporation continues to demonstrate a high level of free cash flow generation. This allows it to invest in development as well as return capital to shareholders through dividends and share buybacks. A stable financial foundation makes Microsoft one of the most reliable assets for long-term investors.
4 Distribution of financial stability for Microsoft Corp in the "Software" industry and "Technology" sector. Source: gurufocus.com
Companies with Potential to Repeat Microsoft's Success
Microsoft remains a key player in the technology market, but investors seeking new opportunities may want to consider DELL and ADBE. These companies have growth potential due to scalable technology solutions and strategic positioning, making them attractive candidates for long-term investments.
Dell Technologies Inc. (DELL)
Dell is actively investing in artificial intelligence and cloud solutions, making it appealing to long-term investors. Key growth factors include:
- Demand for servers and data storage solutions due to AI development.
- Potential sales growth of PCs due to the upgrade to Windows 10 and the shift to AI-powered PCs.
- Plan to return 80% of free cash flow to shareholders through dividends and buybacks.
Despite temporary adjustments, Dell is considered undervalued compared to competitors in the IT infrastructure sector, giving it growth potential of up to 25% based on the average target price of investment banks at $150.
Adobe Inc. (ADBE)
Adobe is a key player in digital content and design, and the recent decline in its stock presents an opportunity for investors to increase their stake in a company with strong competitive advantages.
- Artificial intelligence enhances rather than replaces Adobe's software, increasing efficiency and demand among digital enterprises.
- Firefly AI and innovative features