When Microsoft (MSFT) reports results for the first quarter of its 2024 fiscal year on Tuesday, investors will be looking to see whether the software giant’s big bet on artificial intelligence is paying off at its cloud-computing unit. Microsoft’s cloud business, Azure, is crucial to its increased focus on AI. As part of that effort, the company has poured $13 billion into a partnership with OpenAI , the startup behind ChatGPT. And Azure — which powers many of Microsoft’s growing AI offerings from search engine Bing to its suite of Office products — is proving to be a key growth driver, as the world continues to migrate from on-premise software to the cloud. In Microsoft’s fiscal 2022 fourth quarter , the average annualized value of a large long-term Azure contract hit its highest value in the company’s history. At the time, over 11,000 organizations were using Azure’s AI services, which are undergirded by OpenAI technology. MSFT YTD mountain Microsoft (MSFT) year-to-date performance For the three months ended Sept. 30, Microsoft’s total revenue is expected to climb 8.7% year-over-year, to $54.49 billion, according to analyst estimates compiled by LSEG, formerly called Refinitiv. Earnings-per-share (EPS) should come in at $2.65, LSEG data showed, up 12.8% on an annual basis. Analysts estimate Azure revenue growth in the fiscal first quarter expanded 27% year-over-year in constant currency terms, according to FactSet. That compares with a 25.6% annual increase last quarter. The estimates highlight bullish sentiment on Wall Street. In a research note Wednesday, Piper Sandler called Microsoft its “highest conviction large cap stock” to hold going into the end of the year, citing the company’s “first-mover advantage in generative AI.” Analysts at Piper Sandler said the Nov. 1 general release of Microsoft’s 365 Copilot , an AI assistant to productivity applications like Word, should be a catalyst for shares. 365 Copilot is another product that grew out of Microsoft’s partnership with OpenAI. Shares of Microsoft, which have soared 36.5% year-to-date, were trading down more than 1% Friday, at roughly $327.50 apiece. Bottom line The full payoff of Microsoft’s AI efforts won’t be fully reflected in the upcoming quarterly results given generative AI is still in its infancy. Microsoft will also need to invest even further in its AI initiatives to see them reflected in the bottom line. In July, Chief Financial Officer Amy Hood said growth from the company’s AI offerings “will be gradual as Azure AI scales and our Copilots reach general availability dates.” More broadly, Microsoft’s investments in AI should generate returns beyond just revenue, as the technology allows the software firm to automate more jobs and cut down on labor costs. After earnings, we’ll be looking to see how 365 Copilot performs following the general launch next month. Ideally, the monthly subscription model — priced at $30 per user — will bring in another recurring revenue stream for Microsoft, helping commercialize the use of generative AI at a relatively affordable price point. Separately, Microsoft closed its landmark acquisition of video game company Activision Blizzard last week. The $69 billion deal, which includes popular series like “Call of Duty,” should help boost Microsoft’s gaming ambitions, while further diversifying its revenue streams. (Jim Cramer’s Charitable Trust is long MSFT . See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
In this photo illustration, a Microsoft logo seen displayed on a smartphone.
When Microsoft (MSFT) reports results for the first quarter of its 2024 fiscal year on Tuesday, investors will be looking to see whether the software giant’s big bet on artificial intelligence is paying off at its cloud-computing unit.
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