Microsoft is set to declare its fiscal first-quarter results on Wednesday, with analysts forecasting the slowest revenue growth the company has seen in a year. While the tech giant remains a leader in the race to capitalise on generative AI, investor caution is building around its heavy spending on AI development and the relatively slow uptake of products like the USD 30-per-month Copilot AI assistant for enterprises.
Microsoft, bolstered by its investments in OpenAI, has positioned itself as a frontrunner in generative AI, but recent financial segmentation and the lack of robust returns from AI products have led to mixed expectations for the company's latest performance. In a survey by Gartner, the majority of IT companies have yet to move beyond the pilot phase with Copilot, adding to the uncertainty surrounding Microsoft’s AI revenue potential.
Morgan Stanley analysts remarked on a ‘wall of worry’ around Microsoft’s earnings due to rising capital expenditures, compressing profit margins and an unclear timeline on AI returns. The company reported that AI services contributed to Azure Cloud’s growth in the previous quarter, but the overall pace of Azure’s business has decelerated slightly. For the recent September quarter, Microsoft’s total revenue is anticipated to have increased by 14.1 per cent to USD 64.51 billion, supported by a 33 per cent growth in Azure, according to data from LSEG and Visible Alpha. Capital expenditures for the quarter are projected to have soared by 71.7 per cent, reaching USD 19.23 billion as Microsoft continues its heavy investment in AI.
In terms of product-specific segments, Microsoft’s productivity and business processes unit, which includes its Office suite, LinkedIn and 365 Copilot, is expected to report stable growth of around 12 per cent quarter-over-quarter. The intelligent cloud segment, home to Azure, likely grew by 20 per cent, while revenue from the more personal computing segment, encompassing Windows and gaming, showed signs of stabilisation amid recovery in the PC market.
Since July, Microsoft shares have inched up by roughly 1 per cent, significantly lagging behind the S&P 500’s performance. However, the stock has gained about 14 per cent overall this year. Despite this growth, investors remain wary, with Copilot adoption rates emerging as a key point of scrutiny.
Analysts such as Melius Research’s Ben Reitzes remain cautiously optimistic, noting slight improvements in Copilot usage, particularly as Microsoft has recently added autonomous AI agent capabilities, which may gradually encourage more widespread adoption among enterprises.
