Microsoft is set to report earnings, and Wall Street will be looking to get updates on AI spending and growth for Azure and Copilot.
Microsoft will post first-quarter earnings after the stock market closes on Wednesday. Analysts surveyed by FactSet expect the tech giant to report earnings of $3.10 a share on revenue of $64.57 billion. That's above earnings of $2.99 a share on revenue of $56.52 billion reported in the same period last year.
Earnings and revenue are far from the only metrics investors will be looking at when Microsoft reports. One major area to watch is going to be capital expenditures, or how much the company continues to spend on generative artificial intelligence initiatives. Capex in the year-ago quarter was $9.92 billion. Analysts expect that number jumped to $14.74 billion in the most recent quarter.
Microsoft reported capex of $13.87 billion in its fourth quarter, which came in higher than Wall Street expected. Chief Financial Officer Amy Hood said in the company's last earnings call that to "meet the growing demand signal for our AI and cloud products, we will scale our infrastructure investments with FY 2025 capital expenditures expected to be higher than FY 2024."
The aggressive spending in AI has led some to wonder when Microsoft will begin to see returns on those investments. Those concerns have hindered the stock. Shares have dropped 8% from their record closing high of $467.56 on July 5, according to Dow Jones Market Data. The stock has gained 14% this year, underperforming an S&P 500 that has risen 22%.
Despite that underperformance, the stock is still trading at 30.7 times earnings expected over the next 12 months, which is above the five-year average of 29.3 times.
Investors will also be looking for signs of Azure and Copilot growth. Azure is the company's cloud computing program. Microsoft said on its fourth-quarter earnings call that it has over 60,000 Azure AI customers, a 60% increase from the previous year. Still, Azure revenue growth in the fourth quarter of 29% year over year was slightly below analyst estimates of 30.2%.
The number of people who use Copilot, Microsoft's gen-AI chatbot that helps users complete computer tasks, nearly doubled in the fourth-quarter from the third.
Raymond James analyst Andrew Marok rates Microsoft as Outperform with a $480 price target. He wrote in a research note on Oct. 22 that "our checks on Azure were encouraging this quarter, suggesting continued traction with ongoing GenAI initiatives, leading to share gains."
He isn't alone in his optimism.
"Despite recent skepticism from investors (particularly around 365 Copilot), based on our conversations with customers, partners and resellers, and survey work with enterprise IT buyers, we believe Microsoft is set to outperform across Cloud, AI Services and Copilot adoption," Truist Securities analyst Joel Fishbein wrote in a research note. He rates the stock as a Buy with a $600 price target.
Microsoft investors want to see that the money the company is putting into its AI initiatives will soon bear fruit. Wednesday will be an important day to get answers as to when that will happen.
Comments