Microsoft (MSFT) investors will be watching capital expenditure levels, growth of the Azure business, and broader AI monetization in the company's fiscal Q4 financial results on July 29, BofA Securities said in a note emailed Monday.
The investment firm said Azure growth will be the key metric to watch, adding that a year-on-year growth of or above 39% to 40% as guided by the company is "needed for the stock to work, while a miss could intensify concerns around AI return on investment."
Demand is still exceeding capacity, supporting the conversion of remaining performance obligations, or RPO, to revenue. "RPO conversion could be a major growth driver given last quarter's $627 billion commercial RPO level," the firm said.
BofA said it expects Q4 capital expenditure of $42 billion, up 32% quarter on quarter and 74% year on year, due to AI capacity expansion, which will compress free cash flow to $14.4 billion from $25.5 billion a year ago.
"We expect continued seat and AI [annual recurring revenue] growth as Azure AI consumption and capacity scale and view these metrics as proof points that AI adoption is translating into incremental revenue," the firm said.
BofA reiterated its buy rating and $500 price target on Microsoft.
Price: 397.12, Change: +3.30, Percent Change: +0.84
Comments