Microsoft poised for 15.8% revenue surge, eyes $3 trillion valuation

Microsoft's AI-Powered Growth: Microsoft is poised to announce a 15.8 per cent rise in quarterly revenue, marking its best growth in nearly two years. The surge is attributed to the increasing adoption of products integrated with generative AI, driving demand for Microsoft's cloud services. With its early leadership in artificial intelligence, the tech giant is expected to solidify its position with a market valuation of $3 trillion, surpassing Apple. The company's focus on investing over $10 billion in OpenAI, a major player in generative AI and the creator of ChatGPT, further emphasises its strategic move.

Microsoft's quarterly results, scheduled for release on Tuesday, are anticipated to set the tone for expectations surrounding AI in the coming year. Investors, who poured billions into AI technology in 2023, are keenly observing the returns on these investments. Analysts suggest that while any revenue boost may be modest in the next few months, the market will closely monitor signs of returns on AI-related investments.

Morgan Stanley analyst Keith Weiss highlights "Gen AI" as the top priority for chief information officers, noting Microsoft's advantageous position, with a majority of CIOs expecting to utilise a Microsoft AI product in the next 12 months. Microsoft's recent widespread rollout of its primary AI tool, the $30-per-month "Copilot" for Microsoft 365, is seen as a significant move, enabling tasks such as drafting emails, creating presentations, and compiling meeting highlights.

Jefferies analyst Brent Thill predicts an increase in AI contribution to Azure growth, Microsoft's cloud business, citing strong demand for Azure AI services. The competition with Amazon.com's AWS and Alphabet's Google Cloud is intensifying, but Microsoft's growth in the cloud business is gaining momentum as customers purchase computing power in anticipation of utilising AI services.

Microsoft's forecast for Azure indicates a growth of 26 per cent to 27 per cent in the second quarter, with expectations from Visible Alpha projecting a 27.7 per cent growth. The company's cloud business gross margin for the December quarter is expected to remain mostly flat from the previous year, as Microsoft invests in expanding its AI infrastructure to meet growing demand.

While a recovery in the personal computers market is anticipated to boost revenue growth in Microsoft's Windows and devices business, the company's Windows-based segment, including the recent acquisition of gaming firm Activision, forecasts sales growth of approximately 16 per cent to 19 per cent in the second quarter. Microsoft's shares witnessed a 57 per cent climb in the previous year, contributing to the overall surge in tech stocks and the S&P 500 in 2023.

(With Reuters Inputs)