TLDR
- Microsoft is reporting its fiscal Q4 earnings, with investors focused on AI revenue and spending.
- Wall Street is looking for signs that Microsoft’s massive AI investments are starting to pay off.
- Microsoft’s cloud business Azure is expected to show continued growth, partly driven by AI services.
- Investors are concerned about the slow financial returns from AI investments despite steady growth.
- Microsoft needs to demonstrate accelerating revenue growth, especially from AI, to meet investor expectations.
As Microsoft prepares to report its fiscal fourth quarter earnings, the tech giant faces increasing pressure from investors to demonstrate that its substantial investments in artificial intelligence (AI) are beginning to yield tangible financial returns.
The company is set to announce its results after the market closes on Tuesday, with analysts expecting earnings per share of $2.94 on revenue of $64.5 billion. These figures would represent a significant increase from the same period last year when Microsoft reported earnings of $2.69 per share on $56.2 billion in revenue.
A key focus for investors will be the performance of Microsoft’s cloud business, particularly Azure. The cloud segment is projected to generate $36.8 billion in revenue, with Azure and other cloud services expected to contribute $28.7 billion.
In recent quarters, Microsoft has highlighted the growing impact of AI on Azure’s revenue growth, reporting that AI services added 7 percentage points to Azure’s growth in the previous quarter.
However, despite this steady growth, some investors are becoming anxious about the pace of financial returns from Microsoft’s massive AI investments.
The company has poured billions into AI development, including a $13 billion investment in OpenAI, the startup behind ChatGPT. These large-scale investments have raised questions about when they will translate into substantial profits.
Microsoft CEO Satya Nadella and his team will likely face questions about the company’s AI strategy and its financial implications during the earnings call. Investors will be looking for clear signs that the AI investments are driving accelerated revenue growth, particularly in the cloud and AI-related services.
The pressure on Microsoft reflects a broader trend in the tech industry, where companies are racing to develop and deploy AI technologies. Competitors like Google parent Alphabet and Amazon are also investing heavily in AI, with mixed reactions from investors. Alphabet’s recent earnings report, for instance, led to a dip in its stock price due to concerns about AI spending and returns.
Microsoft’s stock has performed well this year, rising 13% year-to-date and adding over $350 billion to the company’s market value. However, to maintain investor confidence, the company will need to demonstrate that its AI investments are translating into tangible business growth.
Beyond AI, investors will also be watching other segments of Microsoft’s business. The company’s personal computing division, which includes Windows and Xbox, is expected to show slower growth compared to other areas. The productivity business, home to Office products and LinkedIn, is anticipated to grow by about 10%.
As the tech earnings season continues, Microsoft’s report will be closely watched as an indicator of the broader industry’s progress in monetizing AI investments. With other major tech companies like Meta, Apple, and Amazon set to report later in the week, Microsoft’s results could set the tone for market reactions to AI-related financials.
