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Can the Cloud continue to power Microsoft (MSFT) shares? The company’s Azure Cloud platform has been, arguably, the only legitimate threat to Amazon’s (AMZN) AWS. But will this be the quarter that Microsoft finally overtake its rival?

That question will be answered Thursday when the world’s largest software company reports fourth quarter fiscal 2018 earnings results after the closing bell. The strength of Microsoft’s Commercial Cloud business has been, and will continue to be, the catalyst for the stock’s strong return in 2018 (up 23%, while trading at 52-week highs).

But for the stock to continue to climb, Microsoft on Thursday must demonstrate not only sustained Cloud momentum, but also accelerated earnings growth. CEO Satya Nadella’s cloud-first strategy, which has pushed the company towards higher-margin businesses such as infrastructure and applications, while moving the company away from desktop PC software has paid off.

Last quarter, revenue in its commercial cloud revenue, which consists of Office 365 commercial, Azure, and Dynamics 365, soared 58% year over year to $6 billion, accounting for 22% of Microsoft's total revenue. What’s more, not only did total revenue and earnings per share climb 16% and 36%, respectively, Microsoft returned $6.3 billion to shareholders through dividends and share buybacks. Can the good news continue to flow in Q4?

For the quarter that ended June, the Redmond, Wash.-based tech giant is expected to earn $1.08 per share on revenue of $29.21 billion. This compares to the year-ago quarter when earning were $1.06 per share on $24.7 billion in revenue. For the full year, earnings are projected to rise 16.7% year over year to $3.84 per share, while full-year revenue of $109.49 billion would mark a year-over-year increase of 13%.

Growth in the company’s Office 365 business has been strong, surging 42% year over year in Q3, while Office 365 consumer subscribers increased to 30.6 million from 26.2 million in the year-ago quarter. Meanwhile Office 365 commercial monthly active users grew 35% from 100 million monthly active users last year to more than 135 million in Q3. I expect more of the same this quarter, particularly from Azure.

"We have made the right investment decisions and they are having an impact, increasing our overall share in an expanding market," said Nadella during the company's Q3 conference call with analysts. And until the company start experiencing meaningful signs of slowing growth, Microsoft shares, which pay an annual dividend yield of 1.65%, should remain a significant holding of of any long-term portfolio.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.


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