Microsoft poised for AI-driven revenue surge as stock outperforms
January 29, 2024 – 6:18 AM PST
(Reuters) – Microsoft (MSFT.O) is expected to announce a remarkable 15.8% surge in quarterly revenue, marking its strongest growth in nearly two years. The increasing adoption of its products infused with generative AI is driving demand for its cloud services, propelling the company’s success.
Thanks to its early lead in artificial intelligence, Microsoft is poised to solidify its position as the largest company by market value this year. Surpassing Apple by a small margin, Microsoft claimed the top spot on Friday with a valuation of $3 trillion, dethroning Apple, which had held the title since 2011.
The upcoming results from Microsoft, which has committed over $10 billion to invest in OpenAI, the posterchild of generative AI and creator of ChatGPT, will set the stage for AI expectations this year. In 2023, investors poured billions of dollars into AI technology, and now they eagerly await the returns on their investments.
While analysts predict that any boost to companies’ revenues will be modest in the next few months, Wall Street will closely monitor whether these investments are starting to yield results.
“Gen AI has emerged as the top priority for (chief information officers) and Microsoft is uniquely well positioned, with the majority of CIOs expecting to use a Microsoft AI product in the next 12 months,”
Morgan Stanley analyst Keith Weiss stated in a note dated Jan. 11.
Over the past three months, Microsoft has widely introduced its flagship AI tool, the $30-a-month “Copilot,” for its Microsoft 365 service. This tool can draft emails, create presentations, and compile meeting highlights.
Jefferies analyst Brent Thill stated in a research note, “We expect AI contribution to Azure growth to increase, with our checks pointing to strong demand for Azure AI services.”
“It’s worth highlighting that we expect the situation at OpenAI will have a minimal impact, if any, on Azure’s AI contribution in (the second quarter),” he added.
The growth of Microsoft’s cloud business is also accelerating as customers anticipate utilizing its AI services and purchase computing power accordingly. This has enabled Azure to gain market share as it competes with Amazon.com’s AWS and Alphabet’s Google Cloud.
Microsoft projected a 26% to 27% growth for Azure in the second quarter ending on Dec. 31. Analysts from Visible Alpha anticipate a 27.7% growth for Azure.
“It’s too early to be modeling revenue contribution from GenAI before 2025 for any software company not named Microsoft,” stated RBC Capital Markets analyst Rishi Jaluria.
In October, Microsoft announced that it expects its gross margin for the cloud business in the December quarter to remain mostly flat compared to the previous year, as it invests in expanding its AI infrastructure to meet the growing demand. According to LSEG, operating expenses in the second quarter are expected to experience the most significant surge in five quarters.
A recovery in the personal computers market is anticipated to drive revenue growth in Microsoft’s Windows and devices business to its highest level in four years.
For its Windows-based business segment, which includes the recent acquisition of gaming firm Activision, the company forecasts a sales growth of approximately 16% to 19% in the second quarter. Last week, Microsoft announced that it would be letting go of 1,900 employees at Activision Blizzard and Xbox, representing about 8% of the overall Microsoft Gaming division.
Microsoft’s shares soared by 57% last year, contributing to a 24% surge in the S&P 500 in 2023, along with a rally in other tech stocks such as Alphabet and Nvidia.
Reporting by Yuvraj Malik in Bengaluru; Editing by Sayantani Ghosh and Sriraj Kalluvila
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What are the expectations for AI contributions to Microsoft’s Azure growth and how does it compete with other cloud service providers
Microsoft’s Strong Growth Driven by Generative AI Products and Cloud Services
January 29, 2024 – 6:18 AM PST (Reuters) – Microsoft (MSFT.O) is expected to announce a remarkable 15.8% surge in quarterly revenue, marking its strongest growth in nearly two years. The increasing adoption of its products infused with generative AI is driving demand for its cloud services, propelling the company’s success.
Thanks to its early lead in artificial intelligence, Microsoft is poised to solidify its position as the largest company by market value this year. Surpassing Apple by a small margin, Microsoft claimed the top spot on Friday with a valuation of $3 trillion, dethroning Apple, which had held the title since 2011.
The upcoming results from Microsoft, which has committed over $10 billion to invest in OpenAI, the posterchild of generative AI and creator of ChatGPT, will set the stage for AI expectations this year. In 2023, investors poured billions of dollars into AI technology, and now they eagerly await the returns on their investments.
While analysts predict that any boost to companies’ revenues will be modest in the next few months, Wall Street will closely monitor whether these investments are starting to yield results.
“Gen AI has emerged as the top priority for (chief information officers) and Microsoft is uniquely well positioned, with the majority of CIOs expecting to use a Microsoft AI product in the next 12 months,” Morgan Stanley analyst Keith Weiss stated in a note dated Jan. 11.
Over the past three months, Microsoft has widely introduced its flagship AI tool, the $30-a-month “Copilot,” for its Microsoft 365 service. This tool can draft emails, create presentations, and compile meeting highlights.
Jefferies analyst Brent Thill stated in a research note, “We expect AI contribution to Azure growth to increase, with our checks pointing to strong demand for Azure AI services.”
“It’s worth highlighting that we expect the situation at OpenAI will have a minimal impact, if any, on Azure’s AI contribution in (the second quarter),” he added.
The growth of Microsoft’s cloud business is also accelerating as customers anticipate utilizing its AI services and purchase computing power accordingly. This has enabled Azure to gain market share as it competes with Amazon.com’s AWS and Alphabet’s Google Cloud.
Microsoft projected a 26% to 27% growth for Azure in the second quarter ending on Dec. 31. Analysts from Visible Alpha anticipate a 27.7% growth for Azure.
“It’s too early to be modeling revenue contribution from GenAI before 2025 for any software company not named Microsoft,” stated RBC Capital Markets analyst Rishi Jaluria.
In October, Microsoft announced that it expects its gross margin for the cloud business in the December quarter to remain mostly flat compared to the previous year, as it invests in expanding its AI infrastructure to meet the growing demand. According to LSEG, operating expenses in the second quarter are expected to experience the most significant surge in five quarters.
A recovery in the personal computers market is anticipated to drive revenue growth in Microsoft’s Windows and devices business to its highest level in four years.
For its Windows-based business segment, which includes the recent acquisition of gaming firm Activision, the company forecasts a sales growth of approximately 16% to 19% in the second quarter. Last week, Microsoft announced that it would be letting go of 1,900 employees at Activision.
In conclusion, Microsoft’s remarkable surge in quarterly revenue can be attributed to the increasing adoption of its generative AI products and growing demand for its cloud services. With its early lead in artificial intelligence, Microsoft is set to solidify its position as the largest company by market value. The upcoming results will provide insights into the success of Microsoft’s investments in AI technology.
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