Microsoft (MSFT) will report its quarterly earnings after the closing bell on Tuesday, as Wall Street looks for signs that its deep investments in artificial intelligence is bolstering the company’s all-important Azure cloud computing segment.
Microsoft reported yet another sequential decline in Azure growth in the fourth quarter, but analysts are expecting the company to turn that around in the first quarter.
Revenue for the period is expected to come in at $54.5 billion, a nearly 9% year-over-year increase versus Microsoft’s performance in the same quarter last year, according to data compiled by Bloomberg. Analysts are looking for adjusted earnings per share (EPS) of $2.66, up from $2.35 in Q1 2023.
Microsoft has made AI a cornerstone of its business over the last year, announcing a massive $10 billion investment in ChatGPT developer OpenAI and unveiling generative AI-enhanced versions of its Bing search engine and Edge browser in February.
Since then the company has launched its various generative AI-powered Copilot apps for Outlook, Windows 11, and Microsoft 365. The software can summarize emails, help you draft documents and create PowerPoint presentations, and provide insight into Windows 11 features. Microsoft says it will combine the Copilots into a single app in the future.
Investors now want to know whether those expenditures will pay off in the form of growth across Microsoft’s cloud and productivity segments.
Analysts expect the company to report Productivity & Business Processes revenue of $18.3 billion, up 11.1% year-over-year. Intelligent Cloud is expected to bring in $23.6 billion, up 16.2% year-over-year, while the More Personal Computing segment is set for $12.9 billion, down 3.3%.
Importantly, analysts estimate that the company’s Azure segment will grow 27.2%. That would indicate a sequential increase from Q4 when Microsoft reported Azure growth of 26%. Azure business growth has been declining sequentially for more than a year, so even a slight uptick could satisfy investors.
But Microsoft will also have to prove that the jump in growth isn’t just a one-off, meaning its Q2 Azure guidance will be just as crucial as its Q1 results.
In addition to data on how Microsoft’s various AI initiatives are paying off, investors will be on the lookout for more information about the company’s $69-billion acquisition of Activision Blizzard. Microsoft closed the deal on Oct. 13, but the Federal Trade Commission could still try to break up the companies on antitrust grounds.
The deal is the largest in Microsoft’s history and instantly makes it the third largest video game company in the world by revenue behind Tencent and Sony. CEO Satya Nadella could provide insight into how Microsoft will roll out Activision Blizzard’s titles under the Microsoft brand or how it will be wrapped into its Game Pass subscription service.
Daniel Howley is the tech editor at Yahoo Finance. He’s been covering the tech industry since 2011. You can follow him on Twitter @DanielHowley.
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