Microsoft (MSFT  ) was down 3% despite reporting strong results. The company beat expectations for earnings and revenue growth with some compression in operating margins. It also issued guidance that was slightly above expectations.

Investors were in a profit-taking mood as shares finished lower. This seems to be a common theme this earnings season - companies beat earnings but shares sell-off. It may be an indication that investors anticipate a "peak" in earnings.

Inside the Numbers

In its fiscal Q3, Microsoft had earnings per share of $1.95 which topped analysts' expectations of $1.78 per share. Revenue came in at $41.7 billion which beat expectations of $41 billion. This represents a 19% growth from last year's fiscal Q3. This performance on a year-over-year comp will be interesting to monitor especially as Microsoft was a beneficiary of companies increasing their spending on cloud computing and software to enable and facilitate remote working. Some of the revenue gains were also attributed to strong PC sales as shortages continue.

The company's growth engine continues to be its Azure cloud division which grew 50%, topping expectations of 46%. It also maintained last quarter's growth rate of 50%. In total, Intelligent Cloud delivered $15.1 billion in revenue which was a 23% year over year gain. Intelligent Cloud contains Azure, Windows Server, SQL Server, Visual Studio, GitHub, and Enterprise Services.

In terms of guidance, Microsoft is expecting $43.6 billion to $44.5 billion in revenue in the next quarter. This would be 16% growth from last year and above the $43 billion estimates.

Some other notable items are that Microsoft Teams reached 145 million daily active users. Strength in PC sales led to 10% more Windows users. Currently, there are over 1.3 billion monthly active devices running Windows 10. The company won an Army contract that could be worth up to $22 billion over the next decade to produce augmented reality headsets.

The one negative was compression in margins for Commercial Cloud and Intelligent Cloud. Commercial Cloud narrowed to 70% from 71%. And, Intelligent Cloud narrowed to 42.5% from 44.5%. Overall, operating margins declined from 41.6% to 40.9%.

Stock Price Outlook

Overall, Microsoft shares are up 18% YTD compared to a 12% gain for the S&P 500 (SPY  ). However, since August, share are only up 10% compared to a 17% gain for the S&P 500. So, many are expecting a resumption of leadership from the mega-cap tech stocks.

This seems quite reasonable as these companies' earnings report shows no signs of a drop-off. Instead, they are maintaining growth levels, making them more attractive from a valuation perspective. For example, Microsoft's profit margins are 3x that of the S&P 500, earnings growth is 1.5x the S&P 500, and revenue growth is 2x the S&P 500. Despite these superior statistics, it's only slightly more expensive than the overall market with a forward PE of 30.

Therefore, this dip in prices looks like a compelling entry point.