Microsoft earnings: What to expect from Azure, Office, and AI

“While the overall economy continues to slow, we have widely heard of stabilization and, in some cases, acceleration in cloud consumption,” Jefferies analyst Brent Thiel recently wrote.

Meanwhile, Wall Street will also be watching to see how AI impacts the company's software business. Microsoft is an investor in OpenAI, and has been building AI features into its software products recently, including through the launch of Copilot for Microsoft 365 Enterprise customers late last year.

Kirk Mattern of Evercore ISI wrote that “the level of interest in Copilot is very high,” and investors will want to see how that impacts the company's financials.

See more: Microsoft's profits are on the rise, and the entire software industry is riding on it

Here are the key numbers to watch in the fiscal second quarter report.

what are you expecting

Earnings: The FactSet consensus is calling for $2.77 in adjusted earnings per share in the fiscal second quarter, up from $2.32 in the same period a year earlier.

he won: Analysts tracked by FactSet expect revenue of $61.1 billion, up from $52.7 billion a year earlier.

The consensus opinion calls for 10% growth, or $18.8 billion, in revenue from the Productivity and Business Operations segment, which includes Office.

Analysts expect Intelligent Cloud revenue to rise 18% to $25.3 billion. This module includes Azure.

The More Personal Computing business, which includes Xbox and Windows, is expected to grow 18% to $16.8 billion.

Stock movement: Microsoft shares are up 21% over the past three months, and are up 69% over 12 months. The stock has risen after two of the company's past five earnings reports, though it was up 3.1% after the last report.

Of the 52 analysts tracked by FactSet who cover Microsoft stock, 48 have buy ratings and four have hold ratings.

What analysts say

Guggenheim analyst John DiVucci said the company's guidance of 16% constant-currency Office 365 commercial revenue growth appears “achievable” as it sees a “sharp decline” in new annual recurring revenue.

“While we do not expect a significant impact from M365 Copilot… this quarter, the company should continue to benefit from the combination of broad price increases that took effect in March 2022, and renewals of three-year-old domestic E3 deals at significant cost to higher prices.” , and incentive upgrades to the higher-priced E5 [plan],” he wrote.

Truist Securities analyst Joel Fishbein will focus on the company's security comments.

“Historically, this has been the quarter in which the company has determined the size of its security business,” he recently wrote. “Based on these disclosures, we believe MSFT is the largest cybersecurity vendor in the world. We believe this sector will be given additional attention following the breach reported two weeks ago.

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Morgan Stanley's Keith Weiss will look for clues about Azure's potential acceleration.

“Despite optimism about growing AI contributions, near-term investor expectations have been held in check by third-party data releases (which may not fully capture [generative] “The contributions of artificial intelligence, from our point of view.”

As such, the focus was largely “on how we think about generative AI contributing to results and Microsoft's potential to drive Azure growth acceleration in the back half of FY24 versus management's comments looking for flat growth for Azure in [the fiscal second half] “To remain roughly flat compared to Q2” versus easier [year-over-year] “Compares,” Weiss continued.

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