Microsoft’s upcoming earnings report for the third quarter of the 2024 fiscal year is highly anticipated, with a focus on the impact of artificial intelligence (AI) on the company’s financial performance. In the second quarter, Microsoft experienced a 30% surge in revenue from its Azure cloud platform and associated services, with a 6 percentage point boost attributed to AI. This was driven by Microsoft’s Azure OpenAI service, offering access to models from key AI partner. The upcoming earnings report will include a new AI benchmark to monitor, with the revenue from Microsoft 365 Copilot, an AI tool for businesses, being a significant focal point.
Microsoft 365 Copilot was launched in November, making it too late to have a significant impact in the previous quarter, but the upcoming results will reflect a full quarter of sales. This tool is expected to have a substantial potential impact on Microsoft’s financial performance, with CEO Satya Nadella estimating that the next generation of AI technology could drive an additional $7 to $10 trillion of GDP growth in the economy. Moreover, the company recently secured a $1.1 billion commitment from Coca-Cola as part of a five-year strategic partnership focused on cloud and AI technologies, highlighting the momentum behind AI.
Microsoft’s strategic investments and partnerships in AI have been gaining momentum, with the company opting for collaborations rather than acquisitions to avoid regulatory hurdles. Notable investments in AI include ChatGPT maker OpenAI, a $1.5 billion investment in G42, and the acquisition of key executives from Inflection.ai. Despite these investments, regulatory scrutiny has been increasing, particularly around the development of large language models driving growth in AI technologies. Legal disputes, such as the New York Times’ copyright lawsuit against Microsoft and OpenAI, are expected to test the tactics employed by major tech platforms.
Analysts are expecting Microsoft to report strong earnings, with estimates of $2.83 per share, up over 15% from the previous year, and revenue of $60.77 billion, a 15% increase from the prior year. Expectations are based on growing usage and adoption of Microsoft’s AI products, particularly in the Azure and Microsoft 365 segments. Feedback from Microsoft partners suggests increased activity around Copilot, contributing to higher average selling prices for enterprise licensing plans. Analysts view the surge in demand for AI as a significant growth driver for Microsoft in the coming months, likening it to an ‘iPhone Moment’ that could change the trajectory of cloud growth.
Overall, Microsoft’s strong market performance, with a market capitalization exceeding $3 trillion, has positioned it as one of the most valuable publicly traded companies. The company’s shares have risen over 44% in the past year, trading at over $407. Despite a significant decline in cash reserves following the acquisition of Activision-Blizzard, Microsoft’s strategic investments in AI technologies have been seen as key to its growth trajectory. The upcoming earnings report will shed further light on the impact of AI on Microsoft’s financial performance and its potential to drive significant GDP growth in the broader economy.
