Microsoft (MSFT -1.11%) just gave investors a detailed update on its operating and financial trends, and the news was mostly positive. Sales growth accelerated when compared to the prior quarter, and earnings are improving by more than 20%.

There was some less-than-great news in the report, too, including continued shrinking demand in the PC industry and for consumer electronic devices in general. Let's take a closer look and see if the good outweighs the bad here.

Green flag: Moving beyond the AI hype

There's no doubt that the hype cycle is running hot around artificial intelligence (AI) right now, potentially raising the risk that investors will overpay for tech that fails to live up to impossibly high expectations. But Microsoft's report should ease some of those fears.

The company reported 28% higher sales in its Azure cloud services segment for the selling period that ran through late September, and some of that growth came directly from the flood of new AI integrations that Microsoft is adding throughout its platform.

The segment was more profitable, too, with gross profit margin rising by 3 percentage points in the fiscal first quarter. "Higher-than-expected AI consumption contributed to revenue growth in Azure," chief financial officer Amy Hood said in a conference call with investors.

There was good news on the financial front as well. Microsoft generated $27 billion of operating profit, up 24% year over year and translating into a blazing profit margin of 48% of sales. The company produces plenty of cash, too, and is sitting on $144 billion in cash on the books right now.

Red flag: Cautious spending patterns

You would have to hunt a bit to find bad news in Microsoft's report, but they do exist. The company is projecting weaker profitability in the second half of this fiscal year, for example, as it spends aggressively on cranking out new AI products.

The spending environment isn't stellar in big parts of the information-technology world, either. Enterprises are allocating more of their budgets toward crucial applications like cybersecurity, and they are demanding quicker returns on their investments than they were at this time last year.

This pressure is translating into slower growth in enterprise subscriptions. Windows revenue is still being held back by weak PC demand, and Microsoft's device sales slumped by 22% in the period.

The outlook and price

So, is the stock still a buy?

If you liked Microsoft before this earnings update, you have more reason to like it today. There's a bright outlook for its main growth niches of cloud services, cybersecurity, and business productivity software. The Activision Blizzard purchase isn't projected to dent profit margins, either, even as it adds a bigger addressable market. Microsoft isn't sacrificing its industry-leading cash flow or profitability even as it invests heavily in putting AI functionality throughout its entire suite of services.

That success puts the business in the best possible position to grow through a wide range of selling conditions into 2024. A recession isn't likely to torpedo earnings in this case, and Microsoft has plenty of financial resources to weather a more significant downturn, should one hit the software industry.

In the meantime, the stock is valued at 32 times earnings, down from 37 in July. Consider snapping up a few shares at that discount, with an eye toward holding beyond the current volatility spike.