Microsoft (MSFT) will report its second quarter earnings after the bell on Tuesday, as Wall Street looks for signs that the company’s vast artificial intelligence (AI) investments continue to pay off. Microsoft has been one of the biggest beneficiaries of the AI trade, sending shares jumping 50% over the last 12 months and Microsoft’s market capitalization over $3 trillion.
As of Monday afternoon, Microsoft was the wealthiest company in the world by market cap, outmuscling long-time rival Apple (AAPL), which has been stung by recent stock downgrades on fears of sluggish iPhone sales in China.
For the quarter, Wall Street expects Microsoft to post adjusted earnings per share of $2.78 on revenue of $61.1 billion, according to analyst estimates compiled by Bloomberg. That would be a jump from the same quarter last year when the company posted an EPS of $2.32 on revenue of $52.7 billion.
Microsoft’s Intelligent Cloud segment, which includes its Azure service is expected to bring in $25.3 billion in the quarter, up from the $21.5 billion it generated in Q2 last year. Overall Microsoft Cloud revenue is estimated to top $32.2 billion, versus $27.1 billion last year.
On the productivity side of things, Microsoft’s Productivity and Business Processes revenue should top out at $19 billion, according to analyst estimates, up from $17 billion in Q2 last year.
The company’s More Personal Computing business, which includes sales of its Windows software and Xbox gaming division, is expected to generate $16.8 billion, up from $14.2 billion in the prior year.
Microsoft’s AI efforts permeate nearly every part of its business, and ensuring that pays off is something the company is heavily focused on. So far, it has monetized its AI efforts via generative AI cloud services, its Copilot for Microsoft 365 productivity platform, and its Copilot Pro for consumers.
Earlier this month, the company also opened up its Copilot for Microsoft 365 to all businesses, eliminating a prior requirement that customers needed to have 300 employees or more to sign up for the paid service. Clients pay $30 per user per month for access to the software. Copilot Pro for consumers, meanwhile, costs $20 per month per user, and is meant for consumer customers who want to take advantage of Copilot’s more advanced features.
Microsoft, as well as rivals Google (GOOG, GOOGL) and Amazon (AMZN), have been pouring billions of dollars into AI investments over the last year, as they each seek to gain the upper hand in the race to be the AI software leader.
Microsoft grabbed an early lead thanks to its investment in ChatGPT developer OpenAI, but Google and Amazon are gaining ground. Google released its powerful Gemini AI model in December, and, in September, Amazon announced a $4 billion investment in AI company Anthropic giving the cloud giant a minority ownership position in the firm.
But generative AI technology has come under fire recently, as users on X posted AI-generative explicit images of Taylor Swift. The move has prompted more calls for legislation targeting so-called deepfake images and videos.
Still, it’s unlikely the controversy will slow the AI train. With companies pumping out product announcements related to the technology at a steady pace, and PC and smartphone vendors debuting their own products capable of running generative AI software natively, it’s clear generative AI will be a force throughout 2024.
Now Microsoft and its ilk have to continue to prove the hype, and cash they spent, is worth it.
Daniel Howley is the tech editor at Yahoo Finance. He’s been covering the tech industry since 2011. You can follow him on Twitter @DanielHowley.
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