Microsoft Analysts To Focus On Tech Giant's Expansive AI Ambitions Following Q2 Earnings

Microsoft Corp MSFT, will be reporting its second-quarter earnings on Jan. 30. Wall Street expects $2.78 in EPS and $61.13 billion in revenues as the company reports after market hours.

Microsoft, founded by Bill Gates and Paul Allen in 1975, leads globally in computer software and diverse tech services. Renowned for Windows, Office, and Internet Explorer, it maintains a strong competitive advantage, backed by robust intellectual property like patents and exclusive code. The company has been under the leadership of Satya Nadella, as chairman and CEO of Microsoft since 2014.

Related: Microsoft CEO Satya Nadella Reportedly Gearing Up For India Visit With Focus On AI Opportunities

As Microsoft announces earnings, here's what analysts will be focusing on, and how the stock currently maps against Wall Street estimates.

Microsoft Investment Thesis 

With a valuation of over $3 trillion, Microsoft stands as a powerhouse in artificial intelligence (AI). This has been evident through its strategic $13 billion investment in OpenAI since 2019. Microsoft’s commitment to AI has also translated into the integration of ChatGPT technology across a range of products, including Bing, Windows, Edge, 365, and Azure, showcasing the company’s expansive AI ambitions.

The last fiscal quarter results underscored a significant uptick in business customers for the Azure OpenAI Service segment, reflecting a growing demand for AI solutions. As a key distributor of transformative AI technology, Microsoft positions itself for substantial financial gains.

Financially robust, the company generated an impressive $77.1 billion in net income over the last four quarters, allowing for shareholder returns through a $20.7 billion dividend payout, yielding $2.79 per share—an outperformance compared to technology peers like Apple AAPL, Oracle ORCL and Nvidia NVDA.

Microsoft’s 19-year track record of dividend growth adds to its appeal, and a proactive share buyback program, with $17.3 billion in stock repurchased, supports organic share price appreciation.

Microsoft’s strategic focus on AI, coupled with strong financial performance and shareholder-friendly initiatives, positions it as a compelling, growth-oriented investment opportunity.

Microsoft Analysts' Focus & Consensus Ratings

Q2 Analysts' Focus: Analysts are expecting an uptick in Azure growth due to increased migration from Oracle-using enterprises following the recent integration of Oracle databases. Continued advancements in AI and Copilot products are also expected to enhance Microsoft’s recurring revenues, improving the overall reliability of its top-line.

Additionally, this is likely to grant the company pricing power, leading to further gross margin expansion. CEO Satya Nadella’s consistent positive track record and the market’s underestimation of the rapid adoption of AI and Copilot by Microsoft customers may lead to another earnings surprise this quarter. Microsoft has a great history of beating consensus earnings estimates.

Ratings & Consensus Estimates: Consensus analyst ratings on Microsoft stock stand at a Buy currently with a price target of $406.59. Recent analyst ratings received in January 2024 have their price targets for Microsoft stock ranging from $420 to $600 a share.

MSFT Price Action: Microsoft stock was trading at $407.09 at the close of market day on Jan. 29.

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