Microsoft (MSFT) Azure and AI Services Core Growth Drivers For Earnings

$Microsoft(MSFT)$ will be reporting their fiscal Q1 2025 earnings result on 30 Oct (Wednesday) after market close.

Microsoft is expected to post a strong fiscal Q1 with Azure and AI services being the core growth drivers to look out for. Despite increased capital spending, Microsoft's robust balance sheet and cash flow ensure sustainable investments.

Analysts expect Microsoft's revenue to be $64.493 billion, up 14% from the same period of the last year. Adjusted net income to be $23.249 billion, and adjusted EPS to be $3.11, according to Bloomberg's unanimous expectations.

Microsoft Azure Market Share

Microsoft’s revenue growth is up 17.7% year-over-year, reaching $96.2 billion, for its Intelligent Cloud offerings in 2023. This includes Azure and other cloud services, Office 365 Commercial, the commercial portion of LinkedIn, Dynamics 365, and other commercial cloud businesses (Microsoft does not report Azure revenue separately).

Azure’s share of the cloud market has seen steady growth. In 2024, Azure market share reached 24% of the global cloud computing market and their customer base grew by 14.2% from 2023 to 2024.

Nearly 350,000 customers are buying Azure cloud computing services. Azure market share reached 24% of the global cloud market in Q1 2024. From 2023 to 2024, Azure’s customer base grew by 14.2%

Microsoft launched Azure, an open and flexible cloud computing platform, in 2010 and positioned it as an alternative to Amazon EC2 and Google App Engine. To this day, Azure is locked in a heated competition — the so-called “Cloud Wars” with the other two cloud giants: Amazon Web Services (AWS) and Google Cloud Platform (GCP).

However, the cloud infrastructure services market remains highly dynamic as AWS and Google compete with Microsoft for increased cloud spending. Gartner says that in 2022, the worldwide Infrastructure-as-a-Service (IaaS) market grew 30%, exceeding $100 billion for the first time.

As has been the case every year since the first cloud product was introduced, the “Cloud Wars” between AWS, Microsoft Azure, and Google Cloud is a huge driver for the industry’s overall trajectory. All three of the leading providers have shown positive YoY growth in customer count every year since 2019, illustrating the intensity of competition to capture market share.

Microsoft Azure market share reached 24% of the cloud computing market in Q1 2024. Meanwhile, AWS retained 31% and GCP came in a distant third, capturing 11% market share. From 2023 to 2024, Azure’s customer base grew by 14.2%, while AWS and GCP grew by 24.6% and 23.2%, respectively.

While Azure’s customer base grew the least year-over-year out of the top three cloud providers, the influence of 310 new enterprise customers had an outsized impact on Azure market share.

Customers Using Azure Exclusively Increasing. Good News!

The chart below shows multi-cloud usage among Azure customers; specifically.

I think as investors we would be more interested to see if Microsoft customer are using Azure exclusively versus those combining Azure with another leading provider (AWS, GCP, or Oracle).

HG’s data reveals that approximately 64% of Microsoft Azure customers use the platform exclusively, while about 36% use both Azure and another leading provider. Azure’s public moves on multi-cloud have continued over the past year, as Microsoft made several announcements at the end of 2023 expanding its partnership with Oracle.

The most notable of these was Oracle Database@Azure, which became available in the US in December and will go live in more regions in 2024.

This should give us an idea of how the Azure sales and also the AI services business would be doing.

Microsoft Quarterly Revenue and Growth Consistent

Microsoft annual/quarterly revenue history and growth rate from 2010 to 2024. Revenue can be defined as the amount of money a company receives from its customers in exchange for the sales of goods or services. Revenue is the top line item on an income statement from which all costs and expenses are subtracted to arrive at net income.

Microsoft revenue for the quarter ending June 30, 2024 was $64.727B, a 15.2% increase year-over-year. Microsoft revenue for the twelve months ending June 30, 2024 was $245.122B, a 15.67% increase year-over-year.

Microsoft annual revenue for 2024 was $245.122B, a 15.67% increase from 2023. Microsoft annual revenue for 2023 was $211.915B, a 6.88% increase from 2022. Microsoft annual revenue for 2022 was $198.27B, a 17.96% increase from 2021.

If we were to look at the past three years, Microsoft revenue have been growing pretty consistently and if we were to look at the quarterly growth (YoY), it is pretty consistent, though we are seeing some decline in 2024, because of the competition from other cloud providers, but Microsoft Azure customers using it exclusively, should give investors confidence and positive sentiment.

Technical Analysis - MACD and Multi-timeframe (MTF)

If we looked at the performance of Microsoft after last week, we can see that it is on its way to make an upside movement, which can be seen from the upside move from MACD.

We have a nice upside movement from Microsoft on Monday (28 Oct) after it moves comfortably from the short-term and long-term MA, and multi-timeframe gave an encouraging strong uptrend.

So I would be expecting a nice gap up or surge after Microsoft releases its earnings on 30 Oct after market close.

Summary

Microsoft Azure have been adopted by many organizations who have a long term cloud strategy, and this has helped them to stay with Microsoft when they moved into AI implementation.

Microsoft AI services on its Azure marketplace have helped customers to use it for integration easier when the organization cloud platform is on Azure.

I am expecting revenue to give a surprise from the Azure and AI services business.

Appreciate if you could share your thoughts in the comment section whether you think Microsoft could provide an earnings surprise.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.