To The Moon

What Investors Need to Know Ahead of Microsoft's Upcoming Earnings Report

$Microsoft(MSFT)$   will report its fiscal fourth-quarter earnings after the market closes on Tuesday, July 30. Analysts anticipate year-over-year revenue and earnings growth, with a projected revenue of $64.4 billion (up 14.6%) and a net income of $21.88 billion ($2.93 per share, up 9.3%). Investors will be particularly focused on growth in Microsoft's Azure cloud platform and updates on the company's artificial intelligence initiatives.

Check Out Microsoft's Key Expectaions Here:

Azure Cloud Growth

Investors are closely monitoring sustained revenue growth in Microsoft's Azure cloud platform, which has driven past earnings success. Azure has thrived amid the AI boom, with customers using it for AI workloads, bolstering Microsoft's capital spending in AI. Goldman Sachs  analysts project cloud revenue of $37.2 billion, reflecting growth from both the previous quarter and the same period last year. They believe Azure's market share gains and leadership in generative AI could keep Microsoft on a unique growth path during the current AI infrastructure build phase.

Microsoft's Intelligent Cloud business, its fastest-growing segment, constitutes 43% of total revenue. For Q4 2024, the segment is expected to grow 19.5% year-over-year to $28.7 billion. Stronger-than-expected growth in this segment has previously driven up Microsoft's share price. During the quarter, Microsoft increased its global cloud infrastructure market share to a record 25%, just behind $Amazon.com(AMZN)$  's AWS at 31%. Management's comments suggest continued strong momentum in Azure AI services adoption, with growing customer numbers, increased average spend, and accelerated revenue from Azure migrations. CFO Amy Hood noted that near-term AI demand currently exceeds available capacity.

The AI Race

Investors will be closely watching Microsoft's updates on its AI progress and plans, particularly due to its leadership in the field through its partnership with OpenAI, the creator of ChatGPT. The company may provide insights into its Windows PCs designed for AI workloads and their anticipated impact on Microsoft's IT business.

In the previous quarter, Microsoft announced that capital expenditures would significantly increase due to investments in cloud and AI infrastructure. Despite this, the company assured that FY 2024 operating margins would rise by over 2 points year-on-year, with FY 2025 margins only decreasing by about 1 point. Investors will be looking for signs of margin resilience and will want assurance that these large investments will quickly translate into profitable features, rather than long-term projects. This is critical, as seen when $Meta Platforms, Inc.(META)$  's share price dropped after investors were skeptical about its long-term investments in AI and the metaverse.

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