Microsoft Expected to Report Higher 1Q Revenue with AI Growth, CapEx in Focus

Dow Jones
2 hours ago
 

Microsoft is scheduled to release its earnings for the fiscal first quarter after Wednesday's closing bell. Here's what you need to know.

PROFIT: Microsoft is expected to report net income of $35.11 billion, according to analysts polled by FactSet, compared with $27.75 billion a year earlier.

ADJUSTED EARNINGS: Adjusted earnings are expected to be $4.71 a share, according to FactSet, up from $4.13 a share a year prior.

REVENUE: Microsoft's revenue is expected to grow to $90.62 billion from $77.67 billion.

Shares were recently trading down 0.3% at $531.12, up 9.8% this year.

WHAT TO WATCH:

- Microsoft's Azure cloud business is expected to continue showing strong momentum in the first quarter, especially as the main constraint on the business is the availability of infrastructure rather than demand. While the company faces a high bar into the print, Morgan Stanley analysts wrote that a steady increase of data center capacity and efficiency improvements should be a tailwind for Azure's growth. D.A. Davidson analyst Gil Luria also recently noted that an acceleration in OpenAI model usage and a deceleration for Anthropic during the third quarter could benefit Azure's comparisons to Google and Amazon's respective cloud businesses.

- Some analysts also see Microsoft benefiting as enterprises increasingly look to a range of frontier and open artificial-intelligence models. "We increasingly see Microsoft's differentiation moving beyond any individual model to the infrastructure, data/context, orchestration, and application layers surrounding it, broadening the company's opportunity to monetize AI across the stack," Morgan Stanley analysts wrote in a recent note. A combination of continued Azure growth and success in Microsoft's other AI offerings could make the company "stand out as a more resilient AI picks and shovel stock," according to Truist analysts.

- Still, the market has been jittery in recent weeks about the financing behind the AI buildout. "FY27 Capex requirements is a key risk to monitor," Oppenheimer analysts wrote in a recent note. Even there, however, Microsoft may have an advantage: Truist analysts noted that Microsoft's five-year credit default spreads are comparatively tight and have remained relatively stable as spreads widen across the industry. "We believe Microsoft's financial positioning represents an important competitive advantage vs. its AI ecosystem peers," they wrote.

 
 

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