More than a year ago, Microsoft Corp. Chief Executive Steve Ballmer stood in front a group of skeptical Wall Street analysts and insisted that the software maker was still a growth company.

It was a bold statement at the time. Microsoft was suffering delays in releasing an update to its flagship Windows operating system and its stock had slumped to around $24, the lower end of a range it had drifted in for about four years.

Microsoft delivered strong results on Thursday that justified some of Ballmer's optimism for continued growth in its main software lines while buying the company time with investors to build out newer ventures like online advertising and video games.

The stock, already up 10 percent in the last month, surged to $35.57 in after-hours trade, up nearly 14 percent from Wednesday's close and its highest level since 2001.

Ballmer went out on the limb, because it did look like a very silly statement that not only Microsoft was a growth story but that PC operating systems were still a growth story, said Kim Caughey, senior analyst at Fort Pitt Capital Group recalling the financial analyst meeting in July 2006.

However, this is a good foundation for growth.

Microsoft blew past Wall Street estimates with profit and revenue growth exceeding 20 percent for the just-ended quarter and raised its full-year revenue and earnings outlook with a solid performance across its range of businesses.

It looks really strong across the board. It's hard not to like what you see, said Eric Schoenstein, co-portfolio manager for Jensen Portfolio.

Microsoft Chief Financial Officer Chris Liddell said the company defied the law of large numbers -- it's harder for big companies to grow -- by posting the fastest start to its year since 1999 when its stock hit an all-time high near $60.

Microsoft's growth still does not match the dizzying climb at Google Inc. or the iPod-led resurgence at Apple Inc. but the share's sharp gain after the results is a sign that investors are taking a second look at the company.

Based on the top-end of Microsoft's own earnings estimate range for fiscal 2008, the stock traded at around 20 times earnings in after-hours trade. By comparison, Google trades at 32 times analysts' estimated 2008 earnings and Apple is at 37 times.

We think that this is a $40 stock, $40-plus, so we think finally Microsoft is getting recognition for what it's doing, said Caughey from Fort Pitt Capital, which oversees more than $1 billion including Microsoft shares for clients.

WINDOWS OPEN AGAIN

The Windows and Office units delivered revenue growth of more than 20 percent, a sign that businesses and consumers are starting to upgrade to Windows Vista and Office 2007, the latest versions of the two software franchises.

Windows and Office are the two pillars of Microsoft's business. Those traditional desktop software businesses are also considered the most vulnerable to competitors looking to deliver software over the Internet as a service.

Profits from those high-margin businesses during upgrade cycles can be invested into new, high-growth initiatives. It's the same strategy Microsoft used to give birth to its computer server software business and entertainment division.

Microsoft is not entirely out of the woods.

Its online services business posted a fifth straight quarterly loss and the jury is still out on whether its $6 billion acquisition of digital advertising firm aQuantive will pay off.

The company showed its desperation to become a major force in online advertising when it agreed to buy a stake in social networking Web site Facebook for a valuation not seen since the height of the dot-com frenzy in the late 1990s.

Microsoft also lags behind Google and Yahoo Inc in Web search, the most profitable portion of the online advertising market, and improvements to the search engine's look and technology have done little to bridge the gap.

Microsoft's entertainment and devices division swung to a profit in the September quarter thanks to sales of blockbuster video game title Halo 3, but the unit is still three months removed from a $1.06 billion charge to fix hardware problems with the Xbox 360.

The division has predicted that it will turn an annual profit for the first time in the segment's history.

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