Microsoft Q2 Earnings Preview: Artificial Intelligence, Gaming, More Key Items To Watch

Technology giant Microsoft Corp MSFT reports second-quarter financial results after market close on Tuesday, Jan. 30.

Here's a look at the key earnings estimates, what analyst are saying and key items for investors to watch.

Earnings Estimates: Analysts expect Microsoft will report second-quarter revenue of $61.10 billion, according to data from Benzinga Pro.

The company reported revenue of $52.74 billion in last year's second quarter. Microsoft has beaten revenue estimates from analysts in four of the last five quarters.

Analysts expect Microsoft to report second-quarter earnings per share of $2.78 compared to $2.32 in the prior year. The company has beaten earnings per share estimates from analysts in the last five straight quarters.

What Analysts Are Saying: The second-quarter earnings report from Microsoft could be one of the biggest items to kick off earnings season, according to Wedbush analyst Daniel Ives.

Ives, who has an Outperform rating and $450 price target on Microsoft, said Microsoft's report could be the most important earnings of the season regardless of sector.

"The two torch bearers of the AI Revolution are the Godfather of AI Jensen and Nvidia with Nadella and Richmond the foundational Cloud start for AI use cases around the world now exploding with Microsoft's earnings Tuesday after the bell a key barometer for the pace of AI spending," Ives said.

Ives said the second quarter could be strong for Microsoft based on an acceleration of its Cloud deals for Azure.

"We would expect a solid beat for the December quarter with Nadella & Co. likely exceeding the Street's top-line revenue of $61 billion and EPS of $2.77. The most important metric will be Azure growth."

Ives said fiscal 2024 presents strong AI use cases for Microsoft and others, but it is fiscal 2025 that "remains the true inflection year of AI growth."

"We believe the stock still has yet to price in what we view as the next wave of Cloud and AI growth coming to the Redmond story with FY24 with a strong competitive cloud edge vs. Amazon and Google."

Ives said the growth of ChatGPT growth for Microsoft is just beginning to hit "its next gear."

"In a nutshell, we view this as Microsoft's ‘iPhone Moment' with AI set to change the cloud growth trajectory in Redmond the next few years."

Here's a look at other analyst ratings and price targets for Microsoft in January:

Piper Sandler: Overweight rating, $455 price target

Truist Securities: Buy rating, $600 price target

Exane BNP Paribas: Upgrade from Neutral to Outperform, $471 price target

BMO Capital: Outperform rating, raise price target from $400 to $420

Related Link: Microsoft Azure’s Soaring Growth and AI Innovations Signal a Bright Future for Investors: Analysts

Key Items to Watch: Artificial intelligence remains the key to Microsoft's earnings report and conference call.

"We are rapidly infusing AI across every layer of the tech stack and for every role and business process to drive productivity gains for our customers," Microsoft CEO Satya Nadella said during the company's first-quarter report.

Microsoft's quarterly report also comes in the wake of concerns over deepfake images of Taylor Swift made using AI that quickly went viral on social media.

Nadella said the images were "alarming and terrible" and told NBC News' Lester Holt that companies need to "move fast" at combatting the images.

"Yes, we have to act. I think we all benefit when the online world is a safe world."

Another item that could come into focus could be Microsoft's gaming division. The company recently announced layoffs for its recently acquired Activision Blizzard unit and its Xbox division. Comments on the strength or weakness of gaming could help provide more commentary into the layoffs and what's ahead for the sector.

MSFT Price Action: Microsoft shares were up 1.43% to $409.72 on Monday at market close versus a 52-week trading range of $242.20 to $409.98. Shares of Microsoft are up 65% over the past year.

Read Next: 2024 Predictions For Apple, Tesla, ‘Magnificent 7’ And Musk From Analyst Dan Ives: It’s AI’s ‘1995 Moment’