Earnings Report Preview | "New Stock King" Microsoft's performance is about to be released! The revenue-generating effect of AI is highly anticipated by all.

In the past two weeks, the benchmark index of the US stock market, Pro UltrPro Shrt S&Pro 500, has reached a new historical high after a two-year hiatus, and more importantly, this upward trend is still continuing. However, whether this new round of gains can continue will face a high-intensity test during the intensive bombardment of earnings reports from US tech giants this week (January 29th to February 2nd). These tech giants, which account for a significant weight in the Pro UltrPro Shrt S&Pro 500, led the US stock market into a technical bull market in 2023 and continued to lead the market in early 2024, resulting in a new high for the Pro UltrPro Shrt S&Pro 500 after a two-year hiatus.

In the coming week, major US tech companies such as Microsoft (MSFT.US), Apple (AAPL.US), and Amazon (AMZN.US) will release their earnings reports one after another. The key performance data of these tech companies will become the focus of attention in the global stock market, and the performance of these tech giants may affect the risk appetite of global stock investors. If the earnings reports and performance outlook data of these large tech companies with significant weights exceed expectations, it could greatly boost the overall EPS of the Pro UltrPro Shrt S&Pro 500 and the future EPS expectations, which may indicate that the Pro UltrPro Shrt S&Pro 500 may continue to break new highs in the near future and may also suggest that the "comprehensive bull market" benefiting small and medium-sized stocks in the US stock market is only a matter of time.

During this period, one of the most anticipated earnings reports is undoubtedly from the global "new stock king" - Microsoft (MSFT.US), whose market value has just surpassed Apple and exceeded the $3 trillion mark. Microsoft will announce its performance after the US stock market closes on January 30th. According to the consensus data compiled by Wall Street analysts, analysts generally expect Microsoft's total revenue for the second quarter of the 2024 fiscal year (ending in December 2023) to increase by nearly 16% year-on-year, reaching approximately $61.09 billion, mainly driven by its intelligent cloud business, including Azure. With Microsoft's launch of the Microsoft 365 Copilot enterprise version in November last year, the "revenue effect of AI application side" may gradually be revealed. Analysts generally expect Microsoft's Q2 GAAP earnings per share (EPS) to be $2.77, which means a possible year-on-year growth of 25%.

Cloud service revenue is expected to remain strong, with the revenue effect of AI gradually being realized.

Looking back at the previous quarter, Microsoft's performance can be described as exceeding expectations across the board. In the first quarter of fiscal year 2024, total revenue reached $56.5 billion, a year-on-year increase of 13%, achieving double-digit revenue growth for the first time in nearly a year. The highest revenue came from the "Intelligent Cloud" business, which includes Azure, GitHub, server products, enterprise, and cloud services, with revenue of $24.3 billion, a year-on-year increase of 19%. Among them, the revenue growth brought by Azure cloud services reached 29%, exceeding the analyst's expectation of 26%.

Microsoft's strong performance in the first quarter of fiscal year 2024 reflects the global trend of enterprises deploying AI technology and their strong demand for Microsoft Azure cloud services. The booming development of generative artificial intelligence requires strong cloud computing capabilities, so the global demand for Microsoft's cloud computing services has become increasingly strong. Recently, Microsoft's cloud service revenue has regained its growth trajectory, largely indicating that the cloud computing-related services of this veteran technology giant are benefiting from the explosive growth in cloud computing-related software and hardware service demand brought about by the global trend of deploying artificial intelligence (AI).

On the enterprise side, Microsoft launched Azure OpenAI cloud services based on ChatGPT technology last year, which is a new AI-enhanced version of Azure cloud services. Azure OpenAI cloud services are a service provided by Microsoft that allows users to access OpenAI's powerful language models, including the GPT-4, GPT-4 Turbo with Vision, GPT-3.5-Turbo, and Embeddings model series, through REST APIs. These models can be used for various tasks, including content generation, summarization, image understanding, semantic search, and translation from natural language to code. Users can access this service through REST APIs, Python SDK, or the web-based interface of Azure OpenAI Studio.

Visible Alpha's expected data shows that Microsoft's intelligent cloud quarterly revenue has roughly doubled in the past three years and is expected to reach a historical high of $25.3 billion in the most recent quarter. This means an expected year-on-year growth of approximately 18%.

In the global AI trend led by ChatGPT, Microsoft, as the largest shareholder and partner of OpenAI, the developer behind ChatGPT, has gained a first-mover advantage. Microsoft has embedded OpenAI's proud GPT large models into its flagship applications such as the Office suite and the aforementioned Azure cloud services, making it the absolute leader in AI application on a global scale.

Wall Street analysts expect Microsoft to announce its highest total revenue in seven quarters, and the revenue from its AI cloud services is expected to continue to soar. In 2024, Microsoft will launch "Copilot Pro," an "office artifact" that embeds ChatGPT technology for individual users, meaning that after serving B-side customers, Microsoft will further expand its presence in the AI application market.Microsoft's consumer users can also use Copilot Pro in applications such as Word and PowerPoint to improve efficiency. The new product is priced at $20 per month. This also marks the entry of Microsoft's flagship products, including Word, Excel, PowerPoint, and email software Outlook, into the AI era with ChatGPT technology, which is widely used by global office workers. It is expected to drive its office software business to a new level of growth.

In the enterprise sector, Microsoft officially launched the Microsoft 365 Copilot Enterprise version with added ChatGPT technology in November last year, priced at $30 per user per month. It is understood that Microsoft no longer limits the scale of Copilot for Microsoft 365 (previously required enterprises to subscribe to at least 300 seats), which means that any large, medium, or small enterprise worldwide can use this AI product and subscribe to the number of seats as needed. However, they need to contact Microsoft's sales service team to purchase the Microsoft 365 Copilot Enterprise version.

Starting from November 1, 2023, the Microsoft 365 Copilot Enterprise version will be fully rolled out to enterprise customers. Copilot, this AI tool, will be integrated into collaborative tools such as Word, Excel, PowerPoint, Outlook, and Teams to improve work efficiency. For example, Copilot can summarize and better organize users' ideas in Word documents, automatically and accurately generate titles or cover images based on the text provided by users, and directly embed them into users' creations. The Microsoft 365 Copilot Enterprise version can also extract users' enterprise data to assist in writing Word documents, emails, planning activities, etc.

Therefore, the additional revenue brought by the Microsoft 365 Copilot Enterprise version will be a key focus for global investors. At the same time, the long-standing market confusion about the "revenue-generating effect of AI applications" may gradually be revealed. Microsoft's Chief Financial Officer, Amy Hood, predicted at the last earnings conference that Microsoft's "business based on generative artificial intelligence" will be the fastest-growing business in Microsoft's history, reaching a scale of $10 billion. A recent survey conducted by Morgan Stanley on global CIOs found that more than two-thirds of them plan to adopt Microsoft's artificial intelligence tools in their companies in the next year.

Investors are looking forward to Microsoft CEO Nadella and other executives releasing more information related to AI revenue expectations at the earnings conference. If the financial data exceeds expectations and positive information related to AI revenue expectations continues to emerge, Microsoft's stock price is bound to usher in a new wave of growth.

The highest target price is $600! Wall Street is optimistic about the monetization prospects of Microsoft's AI tools.In 2023, Microsoft is one of the hottest technology stocks in the US stock market. As of last Friday's close, Microsoft's stock price has risen by as much as 63% in the past year, and the full-year increase in 2023 reached 58%.

According to the consensus rating and target price compiled by Seeking Alpha, Wall Street analysts have a "strong buy" consensus rating for Microsoft, with an average target price of $425.73, a historical high, and a maximum target price of $600.

Truist Securities, a well-known investment institution on Wall Street, recently initiated a "buy" rating on Microsoft stock and set a three-year target price of $600. Truist analyst Joel Fishbein stated in a client report that Microsoft's cloud computing services and artificial intelligence plans are driving revenue into a new round of strong growth.

Fishbein said, "We expect Microsoft to continue to enjoy smooth sailing in the next decade as artificial intelligence and cloud service businesses continue to strengthen." He stated that Microsoft's growth drivers include Azure cloud infrastructure services and Copilot AI generation services.

Citigroup analysts on Wall Street recently reiterated their "buy" rating on Microsoft and raised their target price from $432 to $470. The bank believes that Microsoft is a leader in the global generative AI field and has multiple AI monetization tools, which will drive Microsoft's revenue and profit growth beyond expectations. Citigroup stated that if 77 million customers using Microsoft 365 have a 5% adoption rate of the paid version of Copilot, it will increase revenue by $925 million by the 2025 fiscal year. A 15% adoption rate can increase revenue by $2.7 billion.

Dan Ives, a star strategist from Wedbush, predicts that more than half of Microsoft's users will use Copilot in the next three years. "Although management has talked about the 'gradual increase' of AI monetization in the 2024 fiscal year, according to our recent survey, the pace of AI application is faster than expected.""Dan Ives said.

Dan Ives added that a survey of institutional channels conducted at the end of the fourth quarter of last year showed that with technology companies such as Nvidia, Microsoft, Google, Datadog, and Palantir showcasing their latest subscription-based AI use cases in both the enterprise and consumer sectors, such as Microsoft launching a paid version of Copilot for the enterprise side and Datadog introducing a product called Bits AI based on generative AI, the trend of monetizing AI has begun to have a "positive impact" on the broader technology industry.