$Microsoft(MSFT)$ is set to report fiscal 2025 second-quarter earnings results after market close on 29 Jan 2025 (Wednesday).
Market is expecting Microsoft's Q2 revenue to be $68.864 billion, adjusted net income is $23.499 billion, and adjusted EPS is $3.132, according to Bloomberg's consistent expectations.
The earnings per share is expected to come in at $3,11 better than last year same period $2.93.
Microsoft (MSFT) Modest Gain Since Last Earnings Call In 30 Oct 2024
Though the earnings call sentiment on 30 Oct 2024 for Microsoft is positive, but MSFT has only gained 0.67% since the last earnings call.
Despite the earnings call presented a strong start to the fiscal year with significant revenue growth driven by cloud and AI innovations, there were challenges related to supply constraints impacting Azure and gross margin decreases due to AI infrastructure scaling.
Can MSFT Provide Robust Guidance Again?
During Microsoft's Q1 2025 earnings call, the company provided robust guidance amidst impressive growth metrics. Microsoft Cloud revenue surged to $38.9 billion, marking a 22% increase, with AI-driven transformations contributing significantly as the company’s AI business is projected to exceed an annual revenue run rate of $10 billion next quarter.
Azure and other cloud services reported a 34% growth in constant currency, driven by a 12-point contribution from AI services. Commercial bookings rose by 30%, fueled by an increase in $10 million-plus contracts for Azure and Microsoft 365, and a 27% increase in the portion recognized beyond the next 12 months. Operating expenses were controlled, rising by just 12%, while operating income increased by 14%, indicating margin expansion efforts are paying off.
The company also highlighted a strong capital expenditure plan of $20 billion, with a focus on supporting long-term AI infrastructure growth, signaling confidence in sustained demand. Microsoft's guidance reflects a continued focus on strategic investments in AI and cloud capabilities while maintaining disciplined cost management.
The previous quarter results looks impressive but can MSFT maintain this for the final quarter of 2024?
What Have Contributed To MSFT Q1 2025 Impressive Result?
Microsoft Cloud Revenue Growth
Microsoft Cloud exceeded $38.9 billion in revenue, marking a 22% increase year-over-year, driven by strong demand and long-term commitments.
AI Business Milestone
Microsoft's AI business is on track to reach a $10 billion annual revenue run rate next quarter, making it the fastest-growing business in the company's history.
Azure Growth
Azure revenue grew 33% and 34% in constant currency, with AI services contributing significantly to this growth.
Gaming Revenue Surge
Gaming revenue increased 43% and 44% in constant currency, driven by the Activision acquisition and strong performance in first- and third-party content.
M365 Commercial Cloud Revenue
M365 commercial cloud revenue increased 15% and 16% in constant currency, with growth driven by E5 and M365 Copilot.
For investors, I think we would need to look deeper into who are the incumbents for the Agentic AI. The challenge as seen in the recent DeepSeek launch which has caused a storm in the tech stocks including Microsoft, the cost of producing the technology and the monetization play a part.
If we looked at how M365 commercial cloud revenue have grew by 16%, that might not be sufficient as Microsoft spend quite significant amount of investment on OpenAI to power the copilot.
What To Look Out For MicroSoft Earnings
In the last reported earnings, Microsoft Cloud gross margin percentage decreased by 2 points year-over-year to 71%, impacted by scaling AI infrastructure.
Supply Constraints in Azure
Azure faced supply constraints due to external third-party delays, affecting its ability to meet demand in the short term. This is a concern as the AI revolution is ongoing and we could see rapid development happening so any delays would cause consumers to move to other cloud providers.
Operating Margin Impact from Activision
The Activision acquisition negatively impacted operating income growth by 2 points and earnings per share by $0.05.
Decrease in On-Premises Server Revenue
On-premises server revenue decreased by 1%, affected by lower-than-expected transactional purchasing.
Technical Analysis - Multi-timeframe (MTF)
From the technicals, MSFT still showed that it is still experiencing an upside movement, as seen from the MACD, though there have been a significant decline from the MA, it is currently pushing above the 200-MA, which mean that it is ready for a new upside, but we will have to see how MSFT would be trading today (28 Jan) before its earnings tomorrow (29 Jan).
MTF is giving a quite encouraging signal of strong upward trend, but we will have to see long-term how consumers would consider shifting from OpenAI to DeepSeek, if DeepSeek begin to commercialize their products.
Summary
Overall, I think Microsoft need to work on securing a better short-term supply of Azure as there are consumers who are testing their models, especially on the Azure AI hub.
So this might be a constraint to its earnings and also might affect the guidance.
Appreciate if you could share your thoughts in the comment section whether you think Microsoft could overcome its Azure short-term supply constraints.
@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.
Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.
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