Microsoft Earnings Preview: AI Impact and Cloud Growth in Focus
Microsoft (MSFT) will report its Q2 earnings post-market on Wednesday amidst scrutiny surrounding the impact of China's DeepSeek on the AI industry. DeepSeek's R1 model, trained on less powerful systems, has challenged the dominance of American AI giants.
Microsoft and its Big Tech peers continue to invest heavily in AI, with billions allocated to data centers and infrastructure. However, DeepSeek's disruption has raised questions about the necessity of expensive hardware.
Analysts anticipate Microsoft to post EPS of $3.13 on revenue of $68.8 billion for the quarter. Key metrics include Commercial Cloud segment revenue ($41.1 billion estimated) and intelligent cloud business revenue ($25.8 billion estimated).
Jefferies' Brent Thill expects Azure growth to accelerate in H2 2025, citing improving consumption trends and OpenAI's recent Azure commitment.
Despite Microsoft's position as an AI beneficiary, its stock has underperformed peers. Analysts suggest a potential "mini revenge trade" as AI sales rise and cash flow improves.
Microsoft's Copilot+ PC lineup aims to boost PC sales by enabling native AI application execution. However, compelling use cases for AI PCs remain limited.