【Earnings Preview】Microsoft aims to reclaim the throne of market capitalization! Will the stock continue to perform well with expectations for the AI business?

On January 30, American Microsoft is scheduled to announce its 2024 Q2 (October-December) earnings after the local market close. According to market consensus, the performance forecast for 2024 Q2 (October-December) is revenue to increase by 15.83% year-on-year to $61.095 billion.Adjusting for EPS, which is expected to increase by the same 25.56% to $2.76.Adjusting for EPS, which is expected to increase by the same 25.56% to $2.76.In the 2024 Q1 (July-September) earnings, revenue increased by 13% year-on-year to $56.517 billion, recording the highest growth in the last 6 quarters. Diluted EPS and revenue also exceeded expectations.。

Due to the AI boom increasing cloud demand, the growth of Azure and other cloud service revenues has not slowed down, Office-related business revenue has increased by 13%, and revenue from businesses including Windows, PC, and game consoles has increased by 3%, breaking free from the previous negative growth. The company's management is aiming for the second quarter of 2024.Azure's growth rate is expected to reach 26%-27%.Financial estimates.

Microsoft surpasses Apple and becomes the world's largest market capitalization.
On the morning of the 11th of this month, Microsoft surpassed Apple in market capitalization and returned to the world's number one spot for the first time in about 2 years. This high-tech giant, which focuses on AI, has seen a significant increase in stock prices over the past year, with a market capitalization of over 1 billion.

David Katz, Chief Investment Officer (CIO) of Matrix Asset Advisors, praised Microsoft, stating that Microsoft has a clear roadmap for artificial intelligence (AI), clearly showing how AI will accelerate growth and make long-term prospects more attractive.

In the US market trading on the 24th, the company's market capitalization temporarily rose to 3 trillion dollars (about 440 trillion yen), becoming the second company to surpass the milestone after Apple. The optimism surrounding artificial intelligence (AI) has once again been shown as a strong tailwind for the company.

Full-scale proliferation of AI by 'CopilotPro'.
Microsoft, which has partnered with OpenAI in the development of 'ChatGPT', is considered to be one of the companies that benefit most from AI. With a strong presence in enterprise software and cloud computing, the company is leveraging AI to improve existing products and explore new sources of revenue in both segments.

On November 1st of last year, Microsoft 365 Copilot for enterprises was officially launched. In addition, starting on the 15th of this month (USA time), a paid subscription-based AI service called "Copilot Pro", available in 15 countries including Japan, was launched. The price is $20 per month. Advanced AI functions that were previously mainly limited to business scenes will now be open to a wider range of users. Furthermore, Copilot for enterprises has abolished the minimum purchase requirement for corporate users, indicating the potential growth of small and medium-sized enterprise customers.

Can they maintain the strong growth of their cloud business?
In the previous earnings report (July-September period), Microsoft's cloud business revenue growth rate was 19.4%, surpassing the previous period's growth rate for the first time in four quarters. However, the outlook for the October-December period indicates a level of growth between 16.7-18.1%, suggesting a slowdown in cloud business growth. The cloud business is expected to have future potential as a foundation for providing artificial intelligence (AI) services to enterprises, and a slowdown in growth could lead to investor disappointment.

On the other hand, an analyst from Piper Sandler cos mentioned that Azure's growth accelerated slightly with a growth rate of 29%-30% year-on-year, and the cloud revenue could exceed 200 billion dollars with an average annual growth rate of over 22% in the next three years. The analyst is optimistic about the cloud division. The same analyst has high hopes for Microsoft's leading position in AI, but acknowledges that its contribution to revenue is still small at 1%, highlighting that the cloud is a fundamental demand engine that accelerates growth.

Microsoft's stock price has surged by nearly 57% in 2023, and is up 7% year-to-date. The focus is on whether Microsoft can maintain its position as the top market capitalization leader through the growth of its cloud business in the fiscal year 2024 and business creation through AI utilization. In the short term, the high PE ratio reflects investors' optimistic expectations for the future.