Microsoft is entering the reporting season under pressure from high expectations: the company's stock has already risen 45% from its April lows and closed at $512.6 on Tuesday, July 29, just a dollar away from an all-time high. That said, market sentiment is quite optimistic: a week ago, Alphabet reported results that beat forecasts thanks primarily to strong growth in its cloud segment. This event gave an additional boost to expectations for Microsoft's Azure cloud service.

Consensus forecast FactSet expects Microsoft to post a 15 percent increase in earnings per share to $3.38. Revenue is expected to increase by the same amount to $73.81 billion, with revenue from Azure adding 34 percent at once, analysts expect, according to Wall Street estimates.

What do the analysts think?

- Jefferies' Brent Till believes that Microsoft's report for the fourth quarter of the company's fiscal year 2025 will prove to be "the strongest of the season." The analyst notes that Wall Street's revenue forecasts for Azure's cloud business look achievable and expectations for future growth are "very achievable."

- Evercore ISI emphasizes in a July 24 report that Azure remains a key driver of Microsoft's sustained growth. However, according to analyst Kirk Matern, the favorable results of the cloud division are already largely embedded in the current share price. Nevertheless, he sees potential for further growth during the year, noting that the quotes will be supported by the development of artificial intelligence in Azure and stabilization of cloud services. Evercore estimates that the contribution of AI to Azure's revenue will be about half - 16.75 p.p. Such dynamics will confirm the high demand for cloud services, the investment bank believes. 

Evercore expects Microsoft to maintain its aggressive approach to infrastructure investment, with capex increasing by about 25% over the next fiscal year. At the same time, analysts believe that the rate  of capex growth will normalize and over time will correlate with the overall growth of the cloud segment.

According to Evercore, Microsoft management will give conservative operating margin projections for fiscal 2026, warning of a decline. But given the company's experience in cost control, the investment bank's analysts believe that the actual profitability will be higher, which may come as a surprise to the market.

Evercore recommends keeping a close eye on the current status of the partnership with ChatGPT developer OpenAI during the results presentation, as well as the pace of adoption of the Copilot chatbot in the enterprise segment and Office 365 service revenue, where additional growth is expected due to AI adoption.

- According to Morgan Stanley, Microsoft remains well positioned for strong continued growth on the back of AI scaling. The company's strategy, which combines cost discipline and leadership in cloud technologies, will provide high returns for shareholders for the coming years, the bank's analysts believe;

They estimate Azure segment revenue growth to be 35% year-over-year and to remain at that level through the first half of FY 2026. In the Microsoft 365 segment, Morgan Stanley projects approximately 15% growth, based on the strengthening of plan mix and the gradual recovery of interest in Copilot.

The bank's analysts believe that the pressure on gross profitability will be offset by restrained growth in operating expenses and staff optimization. They named the main risk factor as losses of Microsoft-backed OpenAI, but in fiscal 2027, a sharp acceleration in its profit growth is expected, Morgan Stanley forecasts. Given these drivers, the bank sees the prospect of Microsoft's earnings per share accelerating by more than 20% in 2027, when the impact of other expenses will diminish.

- Deutsche Bank expects Microsoft's report to provide further evidence of the company's leadership in cloud services amid growing interest in AI. Analysts note that the recovery in corporate demand after April's uncertainty related to duties should lead to a marked increase in revenue for the Azure business. Deutsche Bank estimates that the contribution of AI services to sales in this segment will allow Azure to maintain its growth rate at more than double the company's overall revenue.

Deutsche Bank called Microsoft's outlook conservative: in the business process segment, analysts expect strong momentum thanks to the continued expansion of Office 365 and the introduction of Copilot; in the PC segment, they also predict better-than-expected growth. 

Deutsche analysts believe that Microsoft's outlook for next year will again promise to achieve double-digit revenue and operating income growth, while maintaining a stable level of profitability amid increased costs of scaling its AI infrastructure.

This article was AI-translated and verified by a human editor

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