Microsoft will report its earnings for the June quarter. The company is expected to report further growth, despite a slowdown in the annual pace. Its core business, Azure, remains the focus for investors.
ADVERTISEMENTMicrosoft is set to report its fourth-quarter earnings for fiscal year 2024 after the US markets close on 30 July. The tech giant is expected to report continued growth for the quarter, given its front-runner position in the AI race. The AI-powered cloud business, Azure, is considered the critical segment for the upcoming report. Microsoft may also unveil its new development in AI.
Shares of the world’s second-largest company are up 14% year-to-date, trailing the 14.5% growth of the S&P 500.
Forecasts
According to FactSet, analysts expect the company to report revenue of $64.4 billion (€59.3 billion) for the June quarter, up 15% from a year ago. The earnings per share are forecasted at $2.93 (€2.70), marking a 9% year-on-year increase.
However, these figures also indicate a slowing pace compared to the 17% growth in revenue and 20% increase in earnings reported in the March quarter.
AI spotlight
The core business, Azure, remains a focus for investors assessing the valuation of the tech giant. In the March quarter, Microsoft announced that AI services contributed 7% to Azure’s growth, up from 6% in the previous quarter.
In the third quarter of fiscal year 2024, Microsoft's core business, the Intelligent Cloud, experienced a notable resurgence. The segment's revenue surged 21% to $26.71 billion (€24.59 billion), primarily buoyed by Azure's 31% year-on-year growth. Microsoft anticipates Azure's growth will maintain a steady pace, projecting it to range between 30% and 31% for the June quarter.
According to Bloomberg, cloud revenue is forecast at $36.8 billion (€33.88 billion), up 21% from last year, and potentially contributing 57% of its overall revenue, which makes it a pivotal part of Microsoft’s earnings. However, the figure points to a slowdown from a 23% increase seen in the previous quarter. Intelligent Cloud revenue, including Azure, is expected to be $28.7 billion (€26.4 billion), which would lead to a 19.5% increase. This also suggests that cloud growth may slow down from 21% seen in the March quarter.
Another area of focus is GitHub Copilot, an AI-powered code completion tool developed in collaboration with OpenAI. The software has gained 1.8 million paid members as reported by the March quarter. The company has started selling Copilot access to small businesses, along with Microsoft 365 productivity software subscriptions.
CEO Satya Nadella highlighted Azure's market share gains, noting that it has been capturing market share from competitors. He specifically mentioned that approximately 60% of Fortune 500 companies are utilizing Copilot. Analysts from UBS believed that the company has gained market share from Amazon Web Services and Google Cloud.
Capital expenditure
Markets will also scrutinise Microsoft’s capital expenditure as it has been investing heavily to build its AI infrastructure and secure the Graphics Producing Units (GPUs) orders from the chipmaking giant, Nvidia.
During the earnings call in the previous quarter, CFO Amy Hood noted that capital expenditure including finance leases, totalled $14 billion (€12.9 billion) to support its cloud demand and the AI infrastructure. Microsoft expects the figure to increase “materially” in the June quarter, driven by investments in cloud and AI infrastructure. The cloud gross margin is forecast to be lower by 2% year-on-year.
