Earnings Report Preview | Microsoft Q1 Earnings Report is Coming, Can Cloud + AI Become a Revenue Generator?

According to the Zhongtong Finance APP, Microsoft (MSFT.US) will announce its first-quarter results for the 2024 fiscal year after the US stock market closes on Tuesday (Wednesday morning Beijing time). The market expects Microsoft's Q1 revenue to be $54.5 billion, a year-on-year increase of 10%; earnings per share to be $2.65, a year-on-year increase of 13%.

Cloud + AI Indicator

Microsoft's new artificial intelligence (AI) service for large enterprises, Microsoft 365 Copilot, is still more than a week away from its official release on November 1st. However, investors will be paying attention to the company's quarterly report on Tuesday to look for the long-term impact of AI on the company and the entire industry.

Wedbush analyst Daniel Ives said that Microsoft's performance will be a "major indicator of cloud spending, especially the interest of chief information officers in generative AI spending."

Alphabet (GOOGL.US), the parent company of Google, will also announce its earnings report on Tuesday. Investors will compare the various indicators of the two AI giants of the new era. Analysts expect Google's revenue to grow by 10% to $76 billion, with earnings per share of $1.45, a 36% increase from the same period last year.

After the last quarter, Microsoft's biggest challenge is how many companies are willing to pay a premium of $30 per month for Microsoft 365 Copilot, in addition to subscription plans ranging from $12.50 to $57 per month.

Goldman Sachs analyst Kash Rangan said, "We continue to capture signals of rising demand." Tens of thousands of enterprise users have participated in the Microsoft 365 Copilot early access program.

Rangan added that Microsoft's "speed to market, strong influence in the technology stack, and good footprint within enterprises lead us to believe that Microsoft has the ability to drive growth and become a key leader in the era of generative AI (Gen-AI) with the support of these announcements."

AI Revenue Prospects

Last year, Microsoft made artificial intelligence the cornerstone of its business, announcing a $10 billion investment in OpenAI, the developer of ChatGPT, and launching generative AI-enhanced versions of the Bing search engine and Edge browser in February.

Subsequently, the company launched the AI-based Copilot application for Outlook, Windows 11, and Microsoft 365.

Microsoft CEO Satya Nadella wrote in his annual letter to shareholders last week, "The next generation of AI will reshape every software category and every business, including our own."

Wall Street is closely watching whether Microsoft's significant investments in the field of artificial intelligence will translate into growth in its cloud computing and productivity areas.Analysts predict that the revenue of Microsoft's productivity and business process business, including Office products, will reach $18.3 billion, a YoY growth of 11.1%. The revenue of Intelligent Cloud is expected to be $23.6 billion, a YoY growth of 16.2%. The revenue of Personal Computing business is estimated to be $12.9 billion, a YoY decrease of 3.3%.

Analysts estimate that Microsoft's Azure cloud business will grow by 27.2%, an improvement from the previous quarter's growth rate of 26%. Azure's growth has been slowing down for over a year, so even a slight increase can reassure investors.

However, Microsoft still needs to prove that the acceleration in growth is not temporary, which means that the guidance for Azure in the second quarter is as important as the performance in the first quarter.

Activision Blizzard Acquisition

In addition to artificial intelligence and cloud computing, investors will also pay attention to more information about Microsoft's $69 billion acquisition of Activision Blizzard. Microsoft finalized this deal on October 13th, but the US Federal Trade Commission may still split the two companies on antitrust grounds.

This deal is the largest in Microsoft's history, making Microsoft the third-largest global electronic gaming company in terms of revenue, only behind Tencent and Sony. Nadella may reveal Microsoft's plans for launching games under Activision Blizzard or integrating them into its Game Pass subscription service.