Microsoft Q1 Earnings Preview: Will Its Investment in AI Pay Off?
Microsoft Q1 Earnings Preview: Will Its Investment in AI Pay Off?
Investors want to see a return on Azure, and executives will likely emphasize the brighter side
- Microsoft is set to report earnings after the bell on Wednesday.
- Azure revenue and spending will be in focus as the race over AI dominance plays out.
- Analysts expect earnings per share of $3.10 on $64.57 billion in revenue.
Microsoft (MSFT) is scheduled to report first quarter fiscal earnings for 2025 after the market close on Wednesday. The tech giant will announce its results a day before Amazon, one of its main competitors in artificial intelligence (AI).
The stock is up only about 1% since it reported last quarter’s figures back in July. Traders didn’t react well to fourth quarter earnings despite Microsoft posting beats on earnings and sales. While executives noted that they saw enormous interest in its artificial intelligence offerings, investors were concerned about the return on the big spending in the segment.
What do investors expect from Microsoft?
Analysts expect Microsoft to post earnings per share (EPS) of $3.10 on $64.57 billion in revenue. That would be up from $2.99 per share and revenue of $56.52 billion in Q1 ’24. Last quarter, the company reported EPS of $2.95 and revenue of $64.73 billion.
A key metric in focus will be the company’s Intelligent Cloud segment, the part that includes Azure. Last quarter, the segment grew to $28.5 billion, as revenue from Azure surged nearly 30% from a year prior. Last quarter, executives noted that spending on AI would increase.
To justify that spending, investors want to see a return. Microsoft’s executives will likely have to offer guidance that is on the brighter side for its stock to react positively. Analysts expect the Intelligent Cloud segment to post sales of $26.8 billion, according to FactSet. Analysts expect the personal computing segment to report $14.1 billion in revenue.
Microsoft is expected to unveil a slate of new autonomous tools included in Microsoft’s 365 Copilot. These agents are designed to act independently from the worker with minimal but necessary oversight, performing tasks such as communicating with suppliers.
Analysts’ ratings on the stock are largely positive, with Microsoft seen as one of the leaders in AI. Among 58 ratings, 45 hold a strong buy, eight have a buy, four have a hold and only one analyst has a sell rating on the stock. The average one-year price target, according to TradingView, is 496.95 per share.
Trading Microsoft earnings
Microsoft traded with an implied volatility rank (IVR) of 62.8 as of today, meaning volatility is elevated relative to the past 12 months of trading. The expected move per the options market is for +/- 18.96 points, or 4.44%. While the IVR is elevated, the expected move is rather modest. That said, traders who wanti t take a directional bet while limiting their risk may see a short put or call spread as a hypothetical trade option.
Technically, there is potential resistance to the upside at 441.85, marked by the September swing high. Still, MSFT has made a series of higher lows since August, when the stock hit the lowest levels traded since January.
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater
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