Microsoft Earnings Preview: AI in the Spotlight – Key Numbers to Watch for MSFT’s Q1 FY25 Results

Investors and analysts will be closely watching Microsoft’s performance this week for the latest signals of customer demand for artificial intelligence. As Microsoft ramps up spending to expand its capacity for training and operating large AI models, questions persist about the effectiveness of its AI tools for enterprises.

Microsoft will announce its financial results for the three months ending on September 30, 2024—its first quarter of fiscal year 2025—after the U.S. market closes on Wednesday, October 30. Beyond its own financial outlook, Microsoft’s performance is seen as a barometer of AI demand from major enterprise clients.

Here are some key figures I’ve compiled to watch for:

Revenue Expectations: Wall Street analysts anticipate Microsoft to post $64.51 billion in revenue, up 14% year-over-year, near the upper end of its guidance range ($63.55 billion to $64.8 billion).

Earnings Per Share: According to Zacks Investment Research as reported by Nasdaq, analysts expect EPS of $3.08, compared to $2.99 in the same quarter last year.

AI’s Contribution to Azure: AI’s impact on Azure growth will be a critical metric. As a benchmark, AI contributed 9 percentage points to Azure’s 33% overall growth in FY24, including revenues from the Azure OpenAI service powered by Microsoft’s key AI partner.

Microsoft 365 Copilot’s Revenue Contribution: Microsoft has yet to disclose specific revenue contributions from Microsoft 365 Copilot, which provides AI-enhanced productivity tools and business applications. Any new details here would attract significant attention.

Capital Expenditure: CapEx will be another focus. Microsoft reported a record $19 billion in capital expenditures in the June 2024 quarter, primarily supporting long-term AI and cloud infrastructure. CFO Amy Hood has indicated that CapEx is expected to increase further in the coming years.

Market Sentiment: In an October 17 report, Morgan Stanley analysts Keith Weiss and Josh Baer noted that Microsoft shares have lagged behind peers over the past three months due to concerns over capital spending and AI investment returns.

“In our view, this sentiment sets up an opportunity for shares to climb a ‘wall of worry’ in the coming months,” the analysts wrote, describing this week’s earnings report as “a potential first step to overcoming investors’ caution, paving the way for an exciting second half of FY25.”

Bank of America’s Outlook: Research analysts Brad Sills and Carly Liu at Bank of America expect results to meet or exceed their revenue estimate of $64.7 billion, driven by continued workload migration to Azure and upgrade momentum in the Office E3/E5 enterprise licensing cycle, somewhat offset by weakness in PC/Windows segments.

They also predict that Azure’s growth acceleration in the fiscal year’s second half will serve as the next catalyst for Microsoft’s stock.

Pre-market, Microsoft shares are already up 2%. If earnings reach $3.08 per share, the stock could rise to around $441 after the market opens, potentially breaking through to $469. However, if results fall short of expectations, $400 could become a resistance level, with further support around $385.