Microsoft (MSFT) is poised to report its slowest revenue growth in a year on Wednesday, with investor attention zeroed in on AI demand as concerns rise about the pace of returns from its substantial investments in the technology. The tech giant, a frontrunner in generative AI with backing of ChatGPT-owner OpenAI, has recently faced tepid adoption of its AI-driven products like the enterprise-targeted Copilot assistant, priced at $30 per month. “There’s a wall of worry” around Microsoft’s results, say Morgan Stanley (MS) analysts, citing concerns over capital expenditures, profit margins, and lackluster evidence of AI payoff.
Microsoft’s performance report follows a structural change in August that re-segmented its businesses to reflect internal management, complicating quarter-over-quarter comparisons. While the company’s shares have only gained about 1% since its last earnings, underperforming the S&P 500, they are up 14% for the year. Azure, Microsoft’s cloud computing powerhouse, is expected to post 33% growth for the first fiscal quarter ending September 30. Despite rising AI contributions—11% of Azure’s growth in Q4—analysts note a slower overall trajectory. Microsoft had earlier projected Azure would gain speed in the fiscal year’s second half.
Market Overview:- Microsoft anticipates its slowest revenue growth in over a year, awaiting signs of AI adoption.
- Azure cloud unit expected to grow by 33%, yet shows signs of deceleration.
- Spending on AI remains high, with capital expenditure estimated to surge by 71.7%.
- Enterprise uptake of Copilot assistant has been slower than anticipated, with few companies moving beyond pilot phases.
- Microsoft’s productivity unit, which includes Copilot, is projected to show stable growth.
- Personal computing segment may see slight improvement as PC market stabilizes.
- Investors await Q3 results as a gauge of AI’s impact on Microsoft’s bottom line.
- New autonomous AI agents for Copilot could help boost adoption rates in 2024.
- Capital spending levels will remain high as Microsoft sustains its AI and cloud investments.
Microsoft’s Copilot assistant has yet to meet early adoption expectations, with the bulk of enterprises still in pilot stages according to Gartner’s August report. Some analysts are cautiously optimistic, noting that enhancements like autonomous AI agents may help spur greater uptake of Copilot in the near future. Investor sentiment, however, remains skeptical, especially as capital expenditures hit a projected $19.23 billion for the quarter—a 71.7% year-over-year increase. As the software giant approaches its Q3 earnings, signs of AI progress and stable growth across cloud and productivity units will be key for investor confidence.
Despite the short-term concerns, Microsoft's Azure cloud growth and sustained AI investment reflect the company’s long-term strategy to harness the future of AI. With Wall Street maintaining a close watch on quarterly performance and adoption trends, Microsoft’s ability to deliver consistent progress in its AI ventures will likely shape the stock’s momentum for the coming fiscal year.
