Microsoft’s Q2 Earnings Preview: AI Progress in Focus

Microsoft’s Q2 Earnings Preview AI Progress in Focus

Microsoft’s Q2 Earnings Preview: AI Progress in Focus

This week, all eyes are on Microsoft as the tech giant gears up to report its fiscal second-quarter earnings on Wednesday after market close. With its stock trading at $444.06 per share on Friday—down 0.6%—investors are eager to see how the company’s financials align with Wall Street’s expectations. Analysts project revenues of $68.9 billion and a net income of $23.3 billion for the quarter ending December 2024, translating to an expected earnings per share (EPS) of $3.11.

A major point of interest for investors is Microsoft’s progress in artificial intelligence (AI). The company has heavily invested in its AI initiatives, notably through its partnership with OpenAI. OpenAI’s groundbreaking models form the backbone of Microsoft's AI-powered tools, such as Copilot, which is integrated into the Microsoft 365 suite, Windows, Bing, and Edge. Copilot has gained traction among enterprise users, with 70% of Fortune 500 companies leveraging it—a figure that doubled in daily users from the previous quarter.

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Azure, Microsoft’s cloud computing platform, will also take center stage. Azure has been a consistent driver of growth, with revenues climbing 33% year-over-year in the previous quarter. Notably, Azure AI alone contributed 12 percentage points to this growth, underscoring its rising significance. Given Microsoft’s massive $55.7 billion capital expenditure in 2024 and an additional $20 billion last quarter, much of it aimed at AI-capable data centers, investors will look for signs that these investments are paying off.

Additionally, Microsoft is playing a key role in the recently announced $500 billion Stargate AI infrastructure project alongside OpenAI. As one of the initiative’s primary tech partners, Microsoft’s Azure platform is positioned as a linchpin in the deployment of advanced AI systems.

With the stock currently trading at a price-to-earnings ratio of 35.4—higher than both its 10-year average and the broader Nasdaq-100 index—Microsoft faces the challenge of justifying its premium valuation. The numbers reported on January 29 will offer crucial insights into the company’s ability to capitalize on its AI ambitions and maintain investor confidence. Stay tuned!

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