Microsoft, $MSFT, is expected to report a 15.8% jump in quarterly revenue, its best growth in nearly two years,.
Due to its early dominance in artificial intelligence (AI), Microsoft is poised to maintain its position as the largest company by market value in the upcoming year. On Friday, the software giant surpassed Apple, securing a valuation of $3 trillion and dethroning Apple as the most valuable company since 2011 by a narrow margin.
The financial results from Microsoft, scheduled for release on Tuesday, will establish expectations for the role of AI in the business landscape in 2024. Microsoft's substantial investment, exceeding $10 billion, in OpenAI, renowned for its generative AI and creator of ChatGPT, has positioned the company at the forefront of AI advancements.
Analysts anticipate that the impact on companies' revenues from AI investments will be modest in the coming months. However, the financial community is closely monitoring whether these substantial investments will begin to yield returns.
Morgan Stanley analyst Keith Weiss emphasized the significance of "Gen AI" (General Artificial Intelligence) as a top priority for chief information officers (CIOs). Microsoft's strategic positioning is underscored by the majority of CIOs expressing their intent to utilize a Microsoft AI product within the next 12 months.
Over the past three months, Microsoft has widely introduced its primary AI tool, "Copilot," priced at $30 per month, integrated with its Microsoft 365 service. Copilot is capable of drafting emails, creating presentations, and summarizing meeting highlights.
Jefferies analyst Brent Thill predicts an increased contribution from AI to Azure growth, highlighting strong demand for Azure AI services based on market checks. Notably, the situation at OpenAI is expected to have minimal, if any, impact on Azure's AI contribution in the second quarter.
Microsoft's cloud business is experiencing growth, with customers acquiring computing power in anticipation of leveraging its AI services. This has allowed Azure to gain market share in competition with Amazon.com's AWS and Alphabet's Google Cloud.
For the second quarter ending December 31, Microsoft forecasts a growth of 26% to 27% for Azure, aligning with the Visible Alpha analysts' expectation of 27.7% growth.
While it may be premature to project revenue contributions from Gen AI before 2025 for most software companies, Microsoft stands out in its strategic focus on AI, setting the tone for AI advancements in the industry.
Microsoft's October announcement indicated an expected flat gross margin for the December quarter in the cloud business, attributed to AI infrastructure expansion to meet rising demand. Operating expenses for the second quarter are anticipated to experience the most significant surge in five quarters.
A resurgence in the personal computers market is expected to drive revenue growth for Microsoft's Windows and devices business, reaching the highest level in four years.
In the Windows-based business segment, including the recent acquisition of gaming firm Activision, Microsoft forecasts second-quarter sales growth of approximately 16% to 19%. Recently, Microsoft announced the layoffs of 1,900 employees at Activision
