[Financial Results Preview] Microsoft recaptures the market capitalization throne! Will stock prices continue to perform well due to expectations for the AI business?

Microsoft in the US is scheduled to announce financial results for the 24th Q2 (October-December) after closing locally on 1/30. According to market consensus, in the 24-Q2 (October-December) earnings forecast, sales are compared to the same period last year$610.95 billion, up 15.83%. Same as adjusted EPS$2.76, up 25.56%。

In the financial results for Q1 '24 (July-September), sales were 56.517 billion dollars, up 13% from the same period last year, and recorded the biggest increase in the past six quarters. After dilution, EPS sales also exceeded expectations. As cloud demand increased due to the AI boom, growth in Azure and other cloud service sales did not slow down, sales of Office-related businesses increased 13%, and sales of businesses including Windows, PCs, and game consoles increased 3%, leaving negative growth in the previous fiscal year. The company's management team will be in the second quarter of 2024Azure's growth rate reaches 26% to 27%Expected.

Overtake Apple to the top of the world's market capitalization
On the morning of the 11th of this month, Microsoft surpassed Apple in total stock market value and returned to the top position in the world for the first time in about 2 years. The stock price of this high-tech giant, which places its focus on AI, has risen drastically over the past year, and the total market value has risen by more than 1 billion dollars.

David Katz, Chief Investment Officer (CIO) of Matrix Asset Advisors, commented, “Microsoft has drawn a much clearer roadmap with artificial intelligence (AI), and it is wonderful in that it clearly shows how AI accelerates growth and makes long-term prospects more attractive.”

Also, due to the US market transaction on the 24th, the total market value of the company temporarily rose to 3 trillion dollars (about 440 trillion yen), making it the second company after Apple to take this lead. It was once again shown that optimism surrounding artificial intelligence (AI) is a strong tailwind for the company.

Full-scale dissemination of Al with “CopilotPro”
Microsoft, which has partnered with US Open AI, which developed “ChatGPT (chat GPT),” is seen as one company that benefits most strongly from AI. The company, which has a strong presence in enterprise software and cloud computing, is working to improve existing products and develop new revenue sources in both segments by utilizing AI.

On November 1 last year, the “Microsoft 365 Copilot” for enterprises was officially offered. Also, from the 15th of this month (US time), 15 countries, including Japan, began providing a paid subscription generation AI service “Copilot Pro”. The price is $20 per month. Advanced Al functions, which until now were mainly limited to use in the business scene, will be opened to a wider range of users. Furthermore, Copilot for enterprises has abolished minimum purchase requirements for enterprise users, indicating potential growth for small business customers.

Can the cloud business maintain strong growth?
Microsoft's cloud business revenue growth rate was 19.4% due to the previous financial results announcement (fiscal year ending 7/9), which exceeded the growth rate of the previous fiscal year for the first time in 4 quarters. However, the outlook for the 10-12 fiscal year has been presented at a level corresponding to a 16.7-18.1% increase, and it is said that growth in the cloud business will slow down. The cloud business is expected to have future potential as a platform for providing artificial intelligence (AI) services for enterprises, and there is a possibility that a slowdown in growth will lead to investor disappointment.

Meanwhile, analysts Piper Sandler are optimistic about the cloud sector, stating that Azure's growth will accelerate slightly at a growth rate of 29% to 30% compared to the previous year, and there is a possibility that cloud sales will reach over 200 billion dollars with an average annual growth rate of 22% or more over the next 3 years. The analyst is looking forward to Microsoft's leading edge in AI, but acknowledges that its contribution to sales is still small at 1%, and points out that the cloud is a fundamental demand engine that accelerates growth.

Microsoft's stock price rose nearly 57% in 2023, and this year it is 7% higher year to date. With the growth of the cloud business in 2024 and business creation through the use of AI, attention is being paid to whether Microsoft can maintain the top market capitalization throne. In the short term, high PER reflects investors' optimistic expectations for the future.