Microsoft's Cloud and AI Divisions Take Center Stage in Upcoming Earnings Report

Microsoft's Cloud and AI Strategies

Microsoft is set to report its March quarter earnings shortly, and as it often does, all eyes will be turning to the company's cloud and artificial intelligence (AI) divisions.

That comes against the background of an improving personal computer demand, perhaps potential ammunition for a shot in the arm for Windows and Office software sales. The investors will be looking very carefully at the progress of the strategic push in AI and cloud computing.

Zunes Cloud Computing Segment Shines The company's cloud computing Azure business has posted amazing growth, overtaking Amazon Web Services and Google Cloud. That would imply Azure's revenue growing by 18%-19% next quarter—again, well ahead of the $25.9 billion consensus estimate. The segment continues to grow, based on rising demand for the company's cloud infrastructure and services, with Azure's constant-currency revenue seen at a humongous 28.5%.

Microsoft AI: The Key to Unlocking New Revenue Streams

Microsoft is turning its multi-billion-dollar AI aspirations into a reality. It's just one example of the company's having strategically integrated AI in its lineup of software suites. Copilot is a revolution of software-facing user interactions in the Microsoft 365 productivity suite with AI to empower the customer in increasing productivity, unlocking innovation, and new revenue streams.

These AI projects are very important for the future success of Microsoft, and the investors will be critical to its success.

Expected Strong Performance in Every Segment

If you read between the lines, consensus expectations among analysts for Microsoft are calling for a strong performance. Revenue estimates for the quarter are pegged at $60.9 billion with a profit of $2.82 per share.

Breaking this down by business segment, the company forecasts that revenues from operations in the Productivity and Business Processes unit will range between $19.3 billion and $19.6 billion, showing an increase of 10 to 12 percent. This is expected to post revenues from between $14.7 billion and $15.1 billion—a very healthy increase of 11% to 14% in the More Personal Computing segment, which consists of videogames, Windows, and Surface hardware. Its performance, respectively, is duly remarkable in such challenging economic environments, in fact, proving to be quite enduring for the diversified business model of Microsoft.

Bullish Analyst Forecast

Citigroup analyst Tyler Radke, who rates the stock a Buy, had sunny words heading into the report. He pointed to the strength of the Azure business, buoyed by AI services, and said that Azure growth could be 1% to 2% ahead of Wall Street's forecast. Radke also noted a strong PC demand environment that could support Microsoft's software and hardware sales.

Evercore ISI analyst Kirk Materne reiterated an Outperform rating, noting the firm's bullishness on Microsoft's shares and expectations AI will drive an acceleration in Azure revenue growth to up 30%+. Pointing up the boost, Materne noted, "The big spike in Azure growth in fiscal year '21 is being driven by AI." He has the view that while the risk-reward balance still continues to be of advantage, the recent unrelenting momentum in Microsoft's enterprise business and its AI portfolio. A Vote of Confidence in Microsoft's Strategic Direction There appears to be strong support among investors and analysts for the strategic direction of Microsoft in cloud computing and AI. That will be followed shortly by the earnings report and will, in effect, be one of the barometers of how successful this has been, as Azure and AI take center stage. Underlying such human potential, should Microsoft remain innovative and in tandem with the changes in market demands, the company is likely to assure its leadership of the industry and deliver sustainable long-term growth.

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