Microsoft (NASDAQ:MSFT) is set to report its fiscal fourth-quarter earnings after the bell on Tuesday, with Wall Street eagerly awaiting insights into the impact of the company’s extensive AI investments. The tech giant’s performance will be closely watched as investors look for signs that the massive wave of AI spending among Big Tech firms is starting to pay off.
Strong Financial Projections
For the quarter, Microsoft is expected to report earnings per share of $2.94 on revenue of $64.5 billion, according to Bloomberg. This represents a substantial increase from the same period last year, when Microsoft reported an EPS of $2.69 on revenue of $56.2 billion. Cloud revenue is anticipated to come in at $36.8 billion, with Intelligent Cloud revenue, which includes Azure, projected at $28.7 billion.
AI Contributions to Growth
A significant driver of Microsoft’s growth has been its AI services. During the previous quarter, Microsoft announced that AI services contributed 7 percentage points of growth to its Azure and other cloud services revenue. This marked an increase from 6 percentage points in Q2 and 3 percentage points in Q1, demonstrating the accelerating impact of AI on Microsoft’s cloud business.
Market Reaction and Comparisons
Shares of Microsoft have risen 13% year to date, reflecting investor confidence in the company’s AI initiatives. Microsoft’s report follows closely on the heels of Alphabet’s (NASDAQ:GOOG) earnings announcement, where the company noted an uptick in cloud revenue driven by AI interest. However, Alphabet did not provide specific figures on AI’s impact, leading some analysts like UBS Global Research’s Stephen Ju to predict that significant revenue benefits from AI spending might not materialize until 2025.
Analyst Insights and Market Share
Wedbush analyst Dan Ives emphasized the strong momentum in cloud deal flow for Azure, driven by Microsoft’s leadership in AI. “Our checks for Microsoft have been robust this quarter again, as we believe the AI tidal wave with Redmond in the driver’s seat is accelerating cloud deal flow for Azure with strong momentum into the rest of 2024/2025,” Ives wrote.
UBS Global Research analyst Karl Keirstead highlighted Microsoft’s market share gains over competitors like Amazon (NASDAQ:AMZN) and Google. “In terms of share shifts among AWS, Microsoft Azure, and Google Cloud, the most consistent theme in this round of checks was the number of customers and partners that cited share gains by Microsoft resulting from its early lead on the AI front,” Keirstead noted.
Capital Expenditures and Future Investments
Investors are also interested in Microsoft’s future AI investments. In Q3, Microsoft reported capital expenditures, including finance leases, of $14 billion as it continues to build out its AI infrastructure. This substantial investment underscores the company’s commitment to maintaining its competitive edge in the AI and cloud markets.
Alphabet’s CFO Ruth Porat revealed that the company spent $13 billion on capital expenditures in the same period, with the majority directed towards AI. This parallel investment by major tech companies highlights the high stakes involved in leading the AI revolution.
Upcoming Earnings Reports
Microsoft is the first of the big three tech companies to report its earnings this quarter. Intel (NASDAQ:INTC) will follow on August 1, and Nvidia (NASDAQ:NVDA) is set to announce its earnings on August 28. The performance of these companies will provide further insights into the competitive dynamics within the tech and AI sectors.
Conclusion
Microsoft’s Q4 earnings report is crucial for understanding the impact of its AI investments and overall market strategy. With significant growth in cloud and AI services, Microsoft is well-positioned to continue its upward trajectory. Investors will be closely monitoring the earnings report for detailed insights into the company’s performance and future outlook.
As Microsoft continues to innovate and expand its product offerings, its strategic focus on AI and cloud services will be key drivers of sustained growth. The upcoming earnings reports from Intel and Nvidia will further contextualize Microsoft’s position in the tech landscape, making this a pivotal period for the industry.
Featured Image: Pixabay© efes
