Financial Report Preview | Microsoft's Cloud Business Expected to Slow Down in Q1, AI Expenditure and Outlook are the Focus

Microsoft is set to release its first-quarter (Q3 FY2023) earnings report after the US stock market closes on Tuesday.

In recent months, Microsoft has been in a "optimization cycle" for cloud computing, and analysts will be looking for any signs of increased customer spending on new projects.

In addition, Microsoft executives may discuss spending on AI, security, and overall technology during Tuesday's earnings conference call.

Microsoft may say that cloud growth in the last quarter has slowed to its lowest level in five years, which may contrast with its dazzling new products.

Microsoft Performance Expectations

According to estimates compiled by Visible Alpha, Microsoft is expected to see a 3% year-on-year increase in revenue to $51.1 billion in the first quarter.

Microsoft's first-quarter net profit is expected to be $16.7 billion, or earnings per share of 2.24 cents, roughly the same as the same period last year.

Nadella will also provide an update on the layoffs announced in Microsoft's last earnings report, when the company reported its first revenue decline in eight years.

Operating expenses are expected to increase by 10%, lower than the 18% in the previous quarter.

Cloud Business is One of the Focuses

Morgan Stanley said Azure's growth was lower than expected, up about 30% year-on-year, compared with 38% in the previous quarter.

According to Morgan Stanley, Microsoft's guidance for the next quarter may show further slowing of Azure growth, with an expected growth of about 25%.

According to research firm Gartner, global cloud service spending is expected to reach a record $592 billion by 2023, up 21% from last year.

Nevertheless, Microsoft's cloud business may be a bright spot, as the company's personal computing business is expected to see double-digit revenue declines.

About AI

Nadella is expected to face questions about the future of AI tools and the impact of cost-cutting measures.

Nadella is likely to build much of the company's future on the basis of promoting the development of artificial intelligence.

Microsoft's AI-enhanced search engine Bing surpassed 100 million daily active users for the first time in March.

Analysts expect Microsoft's search and advertising revenue to grow by only 4% in the last quarter, compared with a 22% increase in the same period last year. Microsoft's stock price rose 20.40% year-on-year, slightly higher than the S&P 500 Information Technology Index.