Microsoft’s AI Ambitions Under Scrutiny Ahead of Quarterly Results
As Microsoft prepares to unveil its quarterly revenue forecast, investors are eagerly waiting to see if the company’s significant investments in artificial intelligence (AI) will translate into tangible growth. The tech giant has been touting a rebound in its Azure cloud business, but doubts are growing about its ability to monetize AI technology.
Azure Growth Slows Amid AI Contributions
Despite Azure’s slowing growth for two consecutive quarters, Microsoft has assured investors that a rebound is imminent. The company’s shares have underperformed most Big Tech rivals, and a strong dollar is expected to take a toll on its global presence. Morgan Stanley analysts have noted a shift in investor sentiment, citing concerns around gross margins, capital expenditure, and AI monetization.
OpenAI Partnership: A Silver Lining?
Microsoft’s partnership with OpenAI is expected to contribute to Azure’s growth, despite OpenAI’s recent collaboration with Oracle. Microsoft retains the rights to handle almost all of OpenAI’s traffic, ensuring a steady revenue stream as OpenAI’s business expands.
Microsoft 365 Copilot: Pricing Experimentation
Doubts are also surrounding the adoption of Microsoft 365 Copilot AI assistant. To boost uptake, the company has been experimenting with pricing, bundling AI features into Microsoft 365 Personal and Family plans for an extra $3 per month. Enterprises, however, still need to pay $30 a month per user for Copilot.
AI Agents and 365 Copilot Chat
Microsoft has relaunched its free Copilot for businesses as 365 Copilot Chat, featuring AI agents that require minimal human intervention. While the product has faced challenges, analysts believe a 10% penetration rate for Microsoft 365 Copilot could add over $10 billion in revenues within five years.
Quarterly Expectations
Wall Street expects Microsoft to forecast nearly 33% growth in the Azure business during the third quarter. The intelligent cloud business, which houses Azure, is expected to report revenue growth of 19.7% for the second quarter. Microsoft’s productivity and business processes unit is expected to report a revenue growth of 11.8%, while more personal computing is expected to see a 2.6% decline in revenue.
Overall Performance
Revenue is expected to rise 10.9% in the second quarter, slower than the 16% growth in the first quarter. Net profit is expected to increase 6.3%, weaker than the 10.7% growth in the first quarter. As Microsoft navigates the complexities of AI adoption and monetization, its quarterly results will provide valuable insights into the company’s future prospects.
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