Microsoft earnings preview: Focus on cloud rebound and AI

Microsoft (MSFT) is set to report quarterly earnings after the bell on Tuesday alongside fellow tech giant Alphabet.

Further detail on the companies plans for artificial intelligence and how it could help reinvigorate Intelligent Cloud growth, will be at the top of investors mind during the company’s earnings call, as well as any further details on the pending acquisition of Activision Blizzard.

Here’s what Wall Street is expecting for some of Microsoft’s most significant metrics in the company’s fiscal fourth quarter:

  • Revenue: $55.5 billion expected ($51.87 billion in Q4 2022)

  • Adj. EPS: $2.55 expected ($2.23 in Q4 2022)

  • Productivity and Business processes revenue: $18.1 billion expected ($16.6 billion in Q4 2022)

  • Intelligent Cloud revenue: $23.8 billion expected ($20.8 billion in Q4 2022)

  • More Personal Computing revenue: $13.58 billion expected ($14.46 billion in Q4 2022)

Shares of Microsoft have rallied into the report, rising more than 43% this year.

Microsoft has been at the forefront of the AI conversation since announcing a $10 billion investment in the ChatGPT creator, OpenAI, in January. The company has integrated AI into its Bing search product and most recently announced pricing for its new AI-product that will integrate into Microsoft 365 products.

The product, dubbed Copilot, is said to be able to summarize users’ unread emails, reformat PowerPoint bullets, and write drafts based on outlines on demand, among other functions. Wall Street was bullish on the products $30 per month pricing, with several analysts boosting their price targets on the stock after the news.

“While M365 Copilot is still only in a limited preview, and we are not baking any monetization into our model yet, it is clear that M365 Copilot and future AI pricing uplifts will be incremental to [revenue],” Jefferies equity analyst Brent Thill wrote in a note on July 18.

FILE - The Microsoft company logo is displayed at their offices in Sydney, Australia, on Feb. 3, 2021. Microsoft says the early June 2023 disruptions to its Microsoft’s flagship office suite — including the Outlook email and OneDrive file-sharing apps — were denial-of-service attacks by a shadowy new hacktivist group. (AP Photo/Rick Rycroft, File)

FILE – The Microsoft company logo is displayed at their offices in Sydney, Australia, on Feb. 3, 2021. (AP Photo/Rick Rycroft, File)

Slowing growth in Intelligent Cloud, specifically Azure, has also been a sticking point for Microsoft over the past several quarters as businesses cutting back on expenses has led to less cloud services demand. Microsoft’s Azure revenue growth has declined for four straight quarters entering the print.

“We downgraded Microsoft shares to start the year on a view that spending trends on Azure/AWS were deteriorating and that a faster-than-expected Azure deceleration would hold back the stock (it obviously didn’t),” UBS analyst Karl Keirstead wrote on July 13. “Our latest round of checks suggest the backdrop remains tough but is no longer deteriorating – the worst may be behind us.”

UBS upgraded the stock to Buy from Hold in that note and boosted its price target to $400 from $345. The Street has largely grown more bullish on the tech giant in recent weeks. In aggregate, analysts tracked by Bloomberg now have 53 Buy ratings, seven Holds and one sell. The average 12-month price target sits at $376, reflecting 9% upside from Microsoft’s closing price on Monday.

Josh Schafer is a reporter for Yahoo Finance.

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