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FOLLOW-UP: Microsoft beats expectations with nearly $25B in quarterly profits, as AI revenue boosts cloud growth

Investors and analysts will be watching Microsoft’s results closely this week for the latest signs of customer demand for artificial intelligence, as the company spends heavily to expand capacity for training and running massive AI models, amid questions about the effectiveness of the company’s AI tools for businesses.

Microsoft will report its results for the three months ended Sept. 30, 2024, the first quarter of its 2025 fiscal year, after the stock market closes on Wednesday, Oct. 30. Beyond its own financial fate, the company’s results have emerged as a bellwether for broader industry demand for AI from big business customers.

Here are some of the key numbers to watch:

• Wall Street analysts expect Microsoft to post revenue of $64.51 billion, up 14% from a year ago, toward the high end of the range of $63.55 billion to $64.8 billion in guidance that Microsoft provided for the quarter.
• Analysts expect earnings of $3.08 per share, vs. $2.99 per share in the same quarter a year ago, according to Zacks Investment Research, as reported by Nasdaq.
• Other metrics to watch include AI’s contribution to growth in Microsoft Azure revenue. As a benchmark, AI contributed 9 percentage points to the overall 33% Azure growth in FY24. Those AI contributions include revenue from Microsoft’s Azure OpenAI service, which is driven by technology from the company’s key AI partner.
• Microsoft has yet to report the specific revenue contribution from Microsoft 365 Copilot, which offers AI to enhance its productivity tools and business applications. Any new disclosure would get widespread attention.
• Capex will also be closely watched. The company reported a record $19 billion in capital expenditures in the June 2024 quarter alone, largely to support its long-term AI and cloud infrastructure. Amy Hood, Microsoft CFO, told analysts to expect capital expenses to go up even more in the coming years.

In an Oct. 17 report, Morgan Stanley equity analysts Keith Weiss and Josh Baer noted that Microsoft shares have underperformed compared to peers in the past three months given concerns about capital spending and the return on the massive AI investment.

“In our view, the sentiment is setting up an opportunity for shares to climb a ‘wall of worry’ into [the] coming months,” the Morgan Stanley analysts wrote, describing this week’s earnings report “as a potential first step to overturn investors’ cautiousness ahead of an exciting [second half of the 2025 fiscal year] for Microsoft.”

Bank of America Securities research analysts Brad Sills and Carly Liu wrote that they expect results to meet or exceed their revenue estimate of $64.7 billion, “driven by steady workload migration to Azure and upgrade momentum in the Office premium E3/E5 [enterprise licensing] cycle, somewhat offset by PC/Windows softness.”

The BofA analysts likewise wrote that they expect Azure growth acceleration in the second half of the fiscal year to be the next catalyst for Microsoft shares overall.

Check back with GeekWire on Wednesday for full coverage of Microsoft earnings.