Microsoft earnings preview: Another strong report from the AI winner?

The Q1 earnings reporting season kicked off last week, with all of the mega-cap giants set to unveil their latest financial performance in the coming period.

Among those is the world’s largest company Microsoft (NASDAQ:MSFT), whose earnings will be meticulously examined by Wall Street experts for fresh insights into artificial intelligence (AI) demand trends.

The tech behemoth is expected to release its earnings report on April 25, with Wall Street consensus predicting Microsoft will post earnings per share (EPS) of $2.83 and revenue of $60.77 billion.

What analysts are expecting from Microsoft

Several Wall Street firms issued their Microsoft earnings preview reports in recent days, highlighting their latest expectations concerning the Windows maker’s financial performance.

Specifically, Bank of America analysts expect a healthy 1% increase above their third-quarter revenue estimate of $60.5 billion for Microsoft, which represents a 14.5% year-over-year growth, or 14% on a constant currency basis.

Excluding Activision, the growth rate is expected to be 11% year-over-year in constant currency “stemming from sustained Azure and M365 strength,” they wrote.

“We expect 1% upside to our estimate for Azure growth of 28.0% cc, given positive system integrator partner feedback suggesting (1) stable, healthy migration of new workloads to the cloud platform; (2) relative strength in the Microsoft security stack; and (3) ramping usage of Azure AI and data services such as Open AI Services, Azure AI and Fabric,” said analysts.

BofA suggests that Microsoft's next growth catalyst will likely stem from significant AI-related product advancements, such as increased M365 Copilot users or rising Commercial Office ASP.

Despite trading at 37 times projected 2025 free cash flow, the firm anticipates Microsoft’s valuation to remain stable, driven by the expanding AI market, projected to reach $944 billion by 2027.

“The stock should then compound at the FCF growth rate that is accelerating toward low 20s, with incremental contribution from AI in the coming quarters,” they wrote.

Meanwhile, analysts at Evercore ISI are modeling Azure's growth at 28% in constant currency, though they anticipate the potential for higher growth as AI-driven consumption increases. They believe that achieving a 30% growth rate for Azure is feasible with the incremental investments needed.

“We think anything in the 29-30% range is good enough and a 30%+ result is decidedly positive even with MSFT being a crowded long. There will be a lot of focus on the AI impact on Azure (~6pts last quarter) and any sense if the non-AI consumption business is stabilizing,” said Evercore analysts.

Sharing similarly bullish remarks, Citi Research analysts said they remain bullish on MSFT ahead of the Q3 print as their quarterly inputs “point to strengthening Azure growth trends boosted again by AI services, with solid CoPilot interest, though more bite-sized deals initially.”

“Our strong inputs, and a more positive PC backdrop against conservative guidance should yield room for upside across key KPIs (including Azure which should reaccelerate), while we expect continued cost discipline to drive strong EPS upside.”

Microsoft stock gained 9.5% in 2024, outperforming the broader S&P 500 index.