Microsoft Faces Growth Test in Azure Cloud Amid AI Bets and Global Economic Headwinds
Microsoft's quarterly revenue forecast will reveal the impact of its investments in artificial intelligence (AI) and the broader economic environment on its Azure cloud business.
Azure Performance under Scrutiny
After two consecutive quarters of slowed Azure growth, Microsoft expects a rebound in the third quarter. However, analysts remain skeptical about the company's ability to monetize AI technology, into which it plans to invest $80 billion this fiscal year.
AI Impact on Azure
Despite growing AI contributions, Azure growth has lagged. Microsoft attributes this slowdown to a "wall of worry" around gross margins, capital expenditures, and the company's relationship with OpenAI.
OpenAI Partnership
Microsoft retains exclusive access to most of OpenAI's traffic, which will contribute to Azure's growth. Nonetheless, OpenAI's partnership with Oracle raises concerns about Microsoft's AI market dominance.
Strong Dollar Dents Revenue
Like other global companies, Microsoft is expected to face headwinds from a strong dollar, which strengthened by 8% in the last quarter of 2024.
Microsoft 365 Copilot Pricing
To enhance adoption, Microsoft has bundled AI features into Microsoft 365 plans, targeting businesses and individual users. However, the company faces challenges in driving widespread use of its Copilot AI assistant.
Analyst Expectations
Analysts predict a 31.8% growth in Azure revenue for the second quarter. The intelligent cloud business, which includes Azure, is expected to report a 19.7% revenue increase.
Overall, Microsoft's second-quarter revenue is projected to rise by 10.9%, while net profit is forecast to grow by 6.3%.