Investors just received a flood of fresh information about Microsoft's (MSFT -0.98%) sprawling tech business. The company revealed in its fiscal third-quarter earnings report that sales growth accelerated in the cloud services niche while demand slumped in its PC business.  

There were elements in the report to satisfy both bulls and bears, even though the stock's 2023 rally to date suggests that Wall Street is mostly optimistic about the business. Let's take a closer look at the key reasons an investor might want to buy -- or avoid -- Microsoft stock.

The bullish reading

There was a lot for shareholders to celebrate in Microsoft's Q3 update, which covered the selling period that ran through late March. While three months ago, executives described gathering demand pressures in areas like enterprise spending, their tone has brightened considerably. "Our results exceeded expectations," CFO Amy Hood said in a conference call with investors.

Those results included strong sales in the cloud services division and a modest improvement in the PC segment, which has been pressured by a pandemic growth hangover. Revenue overall rose 10% after accounting for currency swings, compared to a 7% increase in the prior quarter.

Microsoft is not struggling to profit from this growth, either. Net income jumped 14%, and operating income remained in market-leading territory at over 40% of sales.

The bearish outlook

The business isn't firing on all cylinders, though. The Windows and hardware device niches were down 28% and 26% this quarter, respectively. Microsoft's video game segment was also sluggish, as demand continued slowing compared to pandemic spikes. And management said big enterprises are still being cautious around spending on the Azure platform as economic growth rates slow. These pressures would all worsen during a recession in the tech industry, if one develops in 2023 or 2024.

Yet the clearer risk for investors is in paying too high a price for Microsoft's growing business. Unlike many of its tech peers that have declined sharply since early 2022, shares aren't far from the all-time pandemic highs. Microsoft is trading at over 10 times annual sales, compared to Apple's price-to-sales (P/S) ratio of 6.8 and Alphabet's ratio of about 5.

Looking ahead

Growth-focused investors will likely be happy to pay that premium. Microsoft's latest results show the power of its diverse portfolio of tech products and services. Market share continues to expand in highly competitive niches like cybersecurity and cloud services, and the company is generating ample profits and cash flow.

The new outlook from CEO Satya Nadella and his team points to these successes continuing at least through the next fiscal quarter, and that positive forecast helped the stock jump in response to the earnings update.

Bears might criticize the tech giant's premium valuation in an uncertain growth environment. But Microsoft just proved that it can accelerate both sales and earnings trends, even as many peers struggle with weakening results. That ability should support excellent shareholder returns, especially once the next cyclical upswing hits key tech niches like enterprise IT spending.