Proactive Investors - Microsoft Corp (NASDAQ:MSFT)'s AI efforts will draw focus when the technology giant delivers its first quarter fiscal 2025 earnings after Wednesday’s closing bell, Wedbush analysts believe.
The Street will be watching to gauge the adoption of Microsoft’s AI assistant Copilot and monetization of its AI initiatives, analysts wrote in a note to clients.
They noted that investor sentiment around Microsoft has shifted to a more neutral or cautious stance, with shares underperforming the Nasdaq amid concerns about the pace of Copilot adoption and increasing competition from other Big Tech firms.
“This is a 'gut check quarter' for Microsoft with many on the Street starting to grow skeptical of the pace of this AI/cloud growth story in Redmond [Microsoft’s headquarters],” they wrote.
Analysts expect Microsoft to deliver a “modest” beat for the September quarter, with Intelligent Cloud likely driving upside to Street estimates of revenue of $64.57 billion and earnings per share of $3.10.
The most important metric will be Azure growth, with the Street expecting 33% year-over-year growth.
Wedbush sees this as beatable given the high level of deal activity seen during the quarter from core Microsoft enterprise customers and partners in the field.
They said their research indicates that over the next three years, more than 70% of Microsoft's installed base is likely to adopt AI-driven functionality for enterprise and commercial applications.
Growing momentum in Copilot deployment among Microsoft’s customers could add $25 billion to the company’s revenue by fiscal 2025.
For every $100 of Cloud Azure spend with Microsoft over the last few years, they see an incremental $40 of AI spend looking ahead.
“Our thesis remains that the cloud and underlying Office 365/Windows ecosystem is going to comprise a bigger piece of the Redmond top-line going forward and will ultimately spur accelerated growth and margins throughout fiscal 2025,” they wrote.
“In a nutshell, we strongly view this as Microsoft's ‘iPhone Moment’ with AI set to change the cloud growth trajectory in Redmond the next few years and recent checks giving further confidence in this dynamic.”
Analysts repeated their ‘Outperform’ rating and $550 price target, implying upside of about 28% from Microsoft’s share price at the time of writing.