The software leader is generally regarded as a frontrunner in the generative AI sector, partly due to its backing of OpenAI, the creator of ChatGPT. However, recent findings suggest a sluggish uptake of its flagship products, including the $30-per-month Copilot assistant designed for enterprises.
Morgan Stanley analysts have noted a "wall of worry" surrounding Microsoft's earnings, highlighting issues such as increasing capital expenditures, margin compression, insufficient evidence of returns from AI, and complications following a financial resegmentation.
These results will be the first since the company restructured its business reporting in August to better reflect management practices. This change, however, has complicated the assessment of the previous quarter's performance.
Since the last earnings report in late July, Microsoft's stock has seen a modest increase of about 1%, significantly lagging behind the benchmark S&P 500. Nevertheless, the stock has appreciated approximately 14% year-to-date.
Analysts surveyed by Visible Alpha predict that Microsoft's Azure cloud-computing division likely experienced a 33% growth in the fiscal first quarter ending September 30. This aligns with the company's expectations but is slightly lower than the growth observed in the previous quarter.
While AI's impact on Azure has increased, contributing 11 percentage points to growth in the fourth quarter, the overall business growth has decelerated. Microsoft indicated in July that it anticipates Azure growth to accelerate in the latter half of the fiscal year.
Analysts from LSEG project that Microsoft's total revenue for the September quarter will have increased by 14.1% to $64.51 billion.
Similar to its AI competitors, Microsoft has cautioned that expenditures on the technology will continue to be substantial.
Capital expenditures for the September quarter are estimated to have surged by 71.7% to $19.23 billion, according to Visible Alpha.
Microsoft's Copilot has not achieved the level of success that the company anticipated.
According to a survey conducted by research firm Gartner in August, out of 152 information technology companies, the vast majority have not advanced their Copilot initiatives beyond the pilot phase.
However, some analysts suggest that Microsoft's recent developments, including the introduction of autonomous AI agents capable of performing routine tasks independently with the assistance of Copilot, could enhance the adoption of this tool.
"Many investors appear doubtful about the uptake of 365 Copilot, as they are not utilizing it extensively themselves," noted Melius Research analyst Ben Reitzes. "Nonetheless, it appears that the data surrounding Copilot is showing modest improvement," he added, highlighting that the assistant is "attracting an increasingly diverse customer base."
Mark Moerdler, a highly regarded analyst from Bernstein, anticipates that Microsoft's productivity and business processes division, which encompasses Office products, LinkedIn, and 365 Copilot, will report a steady quarter-on-quarter growth of 12%, according to LSEG.
Moerdler also estimated that revenue from the intelligent cloud segment, which includes Azure, likely rose by 20%, maintaining the same growth rate as the previous quarter. He further noted that growth in the personal computing division, which covers Windows and gaming, is expected to have increased as the PC market shows signs of stabilization.