MSFT, FRSH, SFM Earnings Roundup
Microsoft (MSFT) delivered a terrific quarter yesterday. Fiscal Q3 2025 revenue and EPS came in ahead of expectations on broad-based strength across the business, with analysts mostly focused on the impressive 4% Azure growth accelerating to 35% year over year, well ahead of management’s guidance for 31% to 32%. Management also talked about AI contributions continuing to increase and, this part is very good, discussed how margins on AI at this point are far better than margins were during the cloud transition years ago. It should be noted that MSFT stock really came alive during that cloud transition. Analysts are very positive on guidance for Azure growth in the upcoming quarter as well as extended AI demand. Lots of details I could get into, but the bottom line is MSFT remains the best “safe” way to play the AI boom. It’s a long-term buy. BUY
Sprout Farmers Market (SFM) also beat expectations (revenue $2.24B vs. consensus $2.21B) and issued improved full-year 2025 guidance (revenue growth +12-14% vs. prior guidance +10.5-12.5% and consensus +12.5%, EPS $4.94-$5.10 vs. prior guidance $4.52-$4.68 and consensus $4.69). Other bullish metrics include digital growth of 28%, to 15% of sales, and private-label penetration of 24%. Store count should grow by about 35 stores this year (current count is 443 after three new stores opened in Q1) as Sprouts goes after customers seeking specialty and health-oriented products (organic, gluten-free, keto, etc.). Stock will continue to trade at a premium valuation that should be supported as long as growth continues. We’re up about 10% since jumping in on April 16. BUY
There’s been some speculation about whether it’s safe to go back into the cloud software pool after the dramatic pullback in this group of stocks when the Trump administration went bonkers on tariffs. But in the last couple of weeks, we’ve had strong reports from SAP (SAP), ServiceNow (NOW) and select other software stocks. Freshworks (FRSH) just joined that group, delivering a surprisingly strong first quarter that beat by 2%, and management also guided for Q2 revenue slightly ahead of consensus expectations. Management talked about the lower cost advantage of the Freshworks platform versus other players like NOW and Zendesk, as well as a relatively fast ability to migrate new customers and get them up and running. FRSH stock has acted well over the last two weeks and is now trading slightly above its 200-day moving average line. We are down roughly 9% on our first half position. While it’s a bit of a speculation to think there is significant near-term upside in the stock from here, we will still go ahead and fill the other half of our position today as it seems there’s considerable room for sentiment toward cloud software stocks to keep improving (MSFT’s report should help a lot). That all said, if FRSH falters, I will likely be quick to let it go. BUY SECOND HALF
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