Another strong quarter on the cards for Microsoft, thanks to AI, cloud power

After delivering an impressive performance in the early part of fiscal 2024, riding the strong demand for cloud services, Microsoft Corp. (NASDAQ: MSFT) is looking to repeat that in the second half. The company is focused on infusing artificial intelligence at every level across the tech stack, which would enable it to continue expanding market share.

A month ago, the Redmond-headquartered software firm’s stock climbed to a record high, extending a six-month-long upswing. The shares pulled back in the following sessions and lost about 7% since then. The downtrend seems temporary as the company’s consistent financial performance and growth prospects indicate that MSFT has the potential to bounce back and reach new highs in the coming months.

Microsoft’s third-quarter 2024 earnings report is scheduled for release on Thursday, April 25, at 4:05 pm ET. It is widely expected that Q3 earnings increased 15% year-over-year to $2.82 per share on revenues of $60.77 billion, which represents a 15% increase.  

AI Push

Of late, The tech behemoth’s growth initiatives have mostly been focused on AI integration. As part of expanding its AI footprint into more markets, the company recently made a significant investment in a UAE-based startup, after making similar moves earlier in Japan, the UK, and Germany. The announcement came on the heels of the company launching its first AI-enabled PCs, adding another AI-linked revenue source after Copilot. Accelerating revenue growth, led by the Azure cloud business, and expanding customer base should unlock significant long-term benefits for the company.

From Microsoft’s Q2 2024 earnings call:

“Our commitment to scaling our cloud and AI investment is guided by customer demand and a substantial market opportunity. As we scale these investments, we remain focused on driving efficiencies across every layer of our tech stack and disciplined cost management across every team. Therefore, we expect full-year operating margins to be up 1 to 2 points year over year, even as AI capital investments drive COGS growth. This operating margin expansion excludes the impact from the Activision acquisition and the headwind from the change in useful lives last year.”

Solid Outcome

In the last quarter, the company’s earnings topped Wall Street’s projections for the sixth time in a row, while it was the fourth straight revenue beat. Earnings rose to $21.9 billion or $2.93 per share in the December quarter from $16.4 billion or $2.20 per share in the comparable period of the previous year. The bottom line benefited from an 18% growth in revenues to $62.02 billion. All three operating segments – Productivity & Business Processes, Intelligent Cloud, and More Personal Computing – expanded in double digits.

Microsoft’s stock has stayed above its 12-month average in recent months. MSFT opened around $400 on Monday and made modest gains in early trading.