In a notable development, Microsoft is set to unveil a 15.8 per cent surge in quarterly revenue, marking its most substantial growth in nearly two years. The driving force behind this surge is the increasing adoption of products integrated with generative AI, fueling demand for Microsoft’s cloud services. With its early leadership in artificial intelligence, the tech giant is on track to secure a market valuation of $3 trillion, surpassing industry rival Apple. Microsoft’s commitment to investing over $10 billion in OpenAI, a key player in generative AI and the creator of ChatGPT, further underscores its strategic positioning.
The quarterly results, slated for release on Tuesday, are poised to establish expectations for AI developments in the coming year. Investors, who heavily invested in AI technology in 2023, are closely monitoring the returns on these investments. Analysts suggest that while any revenue boost may be moderate in the next few months, the market will keenly observe signs of returns on AI-related investments.
Morgan Stanley analyst Keith Weiss identifies “Gen AI” as the top priority for chief information officers, highlighting Microsoft’s advantageous position. A majority of CIOs are expected to leverage a Microsoft AI product in the next 12 months. Microsoft’s recent widespread rollout of its primary AI tool, the $30-per-month “Copilot” for Microsoft 365, is deemed a significant move, facilitating tasks such as drafting emails, creating presentations, and compiling meeting highlights.
Jefferies analyst Brent Thill anticipates an upswing in AI contribution to Azure growth, Microsoft’s cloud business, citing robust demand for Azure AI services. While competition with Amazon.com’s AWS and Alphabet’s Google Cloud intensifies, Microsoft’s growth in the cloud business is gaining momentum as customers invest in computing power in preparation for utilizing AI services.
Microsoft’s forecast for Azure indicates a growth of 26 per cent to 27 per cent in the second quarter, with Visible Alpha projecting a 27.7 per cent growth. The company’s cloud business gross margin for the December quarter is expected to remain mostly flat from the previous year, as Microsoft expands its AI infrastructure to meet growing demand.
As the personal computers market is poised for recovery, boosting revenue growth in Microsoft’s Windows and devices business, the company’s Windows-based segment, including the recent acquisition of gaming firm Activision, forecasts sales growth of approximately 16 per cent to 19 per cent in the second quarter. Microsoft’s shares experienced a remarkable 57 per cent climb in the previous year, contributing to the overall surge in tech stocks and the S&P 500 in 2023.
