Microsoft Q1 Earnings Preview: What Investors Should Watch In Cloud, AI, Azure On Wednesday

Technology giant Microsoft Corporation MSFT is likely to highlight its expanding investments in artificial intelligence and growing revenue in the cloud sector when the company reports first-quarter financial results after market close Wednesday.

Earnings Estimates: Analysts expect Microsoft to report first-quarter revenue of $64.51 billion, up from $56.52 billion in last year's first quarter, according to data from Benzinga Pro.

The company has beaten analyst estimates for revenue in six straight quarters and eight of the last 10 quarters overall.

Analysts expect Microsoft to report first-quarter earnings per share of $3.10, up from last year's $2.99 reported in the first quarter. The company has beaten analyst estimates for earnings per share in eight straight quarters and nine of the last 10 quarters overall.

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What Analysts Are Saying: Microsoft is well positioned to generate double-digit growth over the next three to five years thanks to the Azure cloud infrastructure platform, cloud-based Office 365 productivity suite and a more profitable gaming segment, Bank of America analyst Bradley Sills recently said.

The analyst reiterated a Buy rating on Microsoft with a price target of $510.

Sills said Azure is likely to see high growth, helped by expanding AI use cases.

Piper Sandler analyst Brent Bracelin recently said Microsoft's first-quarter results could be mixed due to new changes for KPI (key performance indicator) metrics.

The analyst maintained an Overweight rating on Microsoft and lowered the price target from $485 to $470.

Bracelin said the results and guidance could be "sloppier than normal" due to the KPI model changes. The analyst said the KPI metric changes might not be fully priced in by investors yet.

The analyst is bullish on Microsoft's continued investments in artificial intelligence, estimating that Microsoft AI could have segment revenue of more than $10 billion in 2025.

Key Items to Watch: Azure and cloud will likely be among the most watched segments when Microsoft reports quarterly results. Intelligent Cloud revenue was $28.5 billion in the fourth quarter, up 19% year over year, and Azure and other cloud services revenue was up 29% year over year.

Azure growth was lower than expected in the fourth quarter, which sent Microsoft’s shares lower after the last quarterly report.

Microsoft reported record bookings and Microsoft Cloud quarterly revenue of $36.8 billion, up 21% year-over-year.

Another area that might be closely watched is gaming segment revenue. Fourth quarter revenue for the Xbox and gaming segment was up 61% year-over-year, helped by the net impact of the Activision Blizzard acquisition.

Another strong quarter for gaming could show the strength of the Activision acquisition.

Microsoft's significant investments in artificial intelligence, along with its commentary and guidance on this key growth area, could influence the stock's movement following the earnings report.

"As a platform company, we are focused on meeting the mission-critical needs of our customers across our at-scale platforms today, while also ensuring we lead the AI era," Microsoft CEO Satya Nadella said after fourth-quarter results.

MSFT Price Action: Microsoft stock is up 1.3% to $432.27 on Tuesday, versus a 52-week trading range of $331.84 to $468.35. Microsoft stock is up 16% year-to-date in 2024.

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