Microsoft Earnings Preview: Will AI Bets Woo Investors?
Microsoft Earnings Preview: Will AI Bets Woo Investors?
Meanwhile, the stock’s high implied volatility rank is attracting options traders
- Microsoft’s third-quarter earnings are due on April 25.
- The company is going all-in on AI, but will it continue to woo investors?
- MSFT trades with an implied volatility rank (IVR) of 70.3.
Microsoft (MSFT) is scheduled to report 2024 third-quarter fiscal earnings on Thursday, April 25, after the markets close. Analysts expect the company to post earnings of $60.9 billion revenue and $2.83 earnings per share (EPS). Those figures would put year-over-year growth at 20% and 27%, respectively.
What are investors watching?
Investors are closely watching several components expected to drive growth in the coming years, including its cloud segment, Azure, and artificial intelligence.
Microsoft’s cloud makes up nearly half of its revenue stream, and the company has invested heavily in adding graphic processing units (GPUs) to its data centers in a bid to support AI models. Intelligent cloud revenue, also known as Azure, grew 20% from a year ago in the latest quarter. Continued growth in this space is likely but will also put a hit on the stock if it fails to impress analysts.
Microsoft has invested about $13 billion in OpenAI, the creator of ChatGPT. Microsoft recently scored a win when European Union regulators decided its OpenAI investment wasn’t an acquisition, according to a Reuters report. The development removes some legal risks hanging over the company at a time when regulators are growing more aware of the AI landscape.
Along with other AI applications, which surround nearly its entire business, investors will be keen to hear chief executive officer Satya Nadella talk about the efforts to further integrate AI into the business. Microsoft recently unveiled its copilot for security, bolstering its cybersecurity business. It’s clear Microsoft is going all-in on AI, and investors can’t get enough—the stock is up over 40% in the last 12 months. But wait, there’s more!
Nadella hired Mustafa Suleyman as Microsoft’s AI CEO in March, a move applauded by investors. Bringing on the DeepMind cofounder signaled the company’s relentless pursuit to win the AI race against Google (GOOGL) and Amazon (AMZN).
Elsewhere, the personal computing segment, which includes Microsoft’s Xbox and first party content like Activision Blizzard, are also in focus. Productivity and business processes, a segment that includes Office 365, will also be under scrutiny as a key driver of growth over the last couple of years.
Trading Microsoft earnings
Despite last week’s broad-based market selloff, MSFT is trading back above the 400 level after pivoting higher from a previously tested area of support around the 395 level. This support zone has held multiple times earlier this year, but prices remain about 5.5% below the March all-time high.
The down move injected some volatility into the stock, with the implied volatility rank (IVR) sitting at about 70. This makes options selling strategies attractive because sellers can collect some hefty premium. That said, be aware earnings can move the stock beyond the expected range, which as of today sat at about a +/- 16.41-point move, according to the April 26 strike.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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