Microsoft is in the hot seat as it prepares to report earnings after the market closes on Tuesday. Investors, eager to see tangible returns on the tech giant’s massive investments in artificial intelligence, are holding their breath.
The crux of the matter? All that AI spending must translate into profits. “Investors will be very focused on Microsoft’s ability to continue to accelerate revenue growth, especially the portion related to AI,” said Gil Luria, senior software analyst at D.A. Davidson.
“If revenue acceleration doesn’t materialize and increases in capex continue, investors may be disappointed.”
Microsoft, under CEO Satya Nadella’s leadership, aims to showcase the value of its hefty AI investments. The stock, closing Monday at $426.73, has risen 1.5% for the day and 13.5% in 2024, though it’s down 8.9% from its peak in early July. Despite a stellar 53.6% rise in 2024, maintaining that momentum is a tall order.
The company’s fiscal fourth-quarter revenue is projected at $64.2 billion, up 14% from a year ago but a step down from the 17% growth in the previous quarter. Earnings per share are expected to rise 8% to $2.90. The pivotal moment will be the report on Microsoft’s intelligent Cloud business, a segment where AI plays a central role.
Last year, Microsoft’s Cloud business saw a 15% growth, with AI contributing 7%. The company invested $10.7 billion to support cloud and AI demand and has sunk $13 billion into OpenAI, with more investments planned.
Investors will scrutinize whether the cloud business exceeds last year’s growth and if AI’s contribution is more significant. The analyst call at 2:30 p.m. PT (5:30 p.m. ET) with Nadella and CFO Amy Hood will likely be a decisive moment.
A shortfall might unsettle investors, especially in light of the AI frenzy that has driven tech shares sky-high in early 2024. Nvidia, for instance, saw a 174% rise by mid-June before slipping 17.6% as shareholders took profits.
As the market waits, the stakes are high for Microsoft to prove that its AI bets will pay off and reassure Wall Street of its strategic direction.
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