Microsoft's Earnings Report Amidst AI Disruption
Microsoft (MSFT) is set to release its second-quarter earnings after the market closes on Wednesday, amid heightened scrutiny over the impact of China's DeepSeek on the AI industry.
DeepSeek's release of its R1 model in January has challenged the notion that developing AI models necessitates the most powerful and expensive chips. The model was reportedly trained on less powerful and affordable systems. This has raised concerns for tech titans like Microsoft, who have poured billions into AI infrastructure.
Microsoft will need to demonstrate that its investments in AI are yielding revenue growth and that its infrastructure investments remain essential. Analysts anticipate the company to report earnings per share (EPS) of $3.13 on revenue of $68.8 billion, surpassing last year's $2.93 EPS and $62 billion revenue.
The Commercial Cloud segment, including cloud services, is projected to generate $41.1 billion, an increase from $31.9 billion. The intelligent cloud business, including Azure, is estimated to reach $25.8 billion, up from $21.5 billion.
Analysts suggest that Azure growth will accelerate in the second half of 2025. Microsoft recently announced OpenAI's significant commitment to Azure, offering support for its products and training.
Despite Microsoft's position as a major beneficiary of the AI boom, its stock performance has lagged behind competitors. However, analysts predict a potential "mini revenge trade" as AI sales grow, Copilot adoption expands, and capital expenditure slows.
Microsoft is also exploring PC sales stimulation through its Copilot+ PC lineup, aiming for native AI application execution. However, intriguing applications justifying upgrades remain limited, with conventional hardware upgrades still driving consumer demand for new PCs.