Microsoft reports its fourth-quarter earnings during a period of skepticism over the AI trade. The company and the other big artificial intelligence spenders are throwing hundreds of billions of dollars into new data centers, and investors are once again asking the timeless question: where's the return?
Microsoft stock already took its AI punishment earlier in the year, down 19%. But the past month has reversed fortunes a bit. Highflying chip stocks have been getting crushed. The S&P 500 and Microsoft's cloud-computing competition -- Amazon.com and Alphabet -- are roughly flat. But Microsoft shares are up 5.5%
To keep that momentum going, Microsoft has three burning AI questions to answer with earnings and guidance.
First, this being the fourth-quarter, it will round out Microsoft's fiscal year 2026 capital expenditures, expected at around $145 billion, up from $88 billion the year before. Will Microsoft give capex guidance for 2027? But the real question is: Will it be another astronomical number, like Alphabet's upsized $200 billion 2026 capex outlook from last week? Many investors are tired of the spending and a big number may send the stock down.
But no one can deny that all that capex is buying around 40% sales growth in Azure cloud, which rents out AI servers over the internet. So the next question is: Can Azure keep it up? Analysts are expecting revenue to rise by 40% again, crossing the $30 billion mark.
The final question regards Microsoft's business software segment, which is caught up in the bearish narrative surrounding that business from AI disruption. This is what weighed on the stock earlier in the year. But the segment keeps outperforming revenue expectations, stretching back 15 quarters. Can it repeat and beat the 12% segment sales growth Wall Street expects?
Investors will be keeping a close eye on subscription growth for Microsoft's flagship AI product, Microsoft 365 Copilot, which has seen slow adoption that has only recently been picking up. Investors will also be frisking the software segment's operating margin to see if there's any slippage from the gains earlier in the fiscal year.
Overall, analysts expect earnings per share of $4.24, up from $3.65 last year, on sales of $87.6 billion, up 15%.
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