What Investors Need to Know Ahead of Microsoft's Upcoming Earnings Report

$Microsoft(MSFT.US)$ will report its fiscal fourth-quarter earnings after the market closes on Tuesday, July 30. Analysts anticipate year-over-year revenue and earnings growth, with a projected revenue of $64.4 billion (up 14.6%) and a net income of $21.88 billion ($2.93 per share, up 9.3%). Investors will be particularly focused on growth in Microsoft's Azure cloud platform and updates on the company's artificial intelligence initiatives.

Microsoft's Intelligent Cloud business, its fastest-growing segment, constitutes 43% of total revenue. For Q4 2024, the segment is expected to grow 19.5% year-over-year to $28.7 billion. Stronger-than-expected growth in this segment has previously driven up Microsoft's share price. During the quarter, Microsoft increased its global cloud infrastructure market share to a record 25%, just behind $Amazon(AMZN.US)$'s AWS at 31%. Management's comments suggest continued strong momentum in Azure AI services adoption, with growing customer numbers, increased average spend, and accelerated revenue from Azure migrations. CFO Amy Hood noted that near-term AI demand currently exceeds available capacity.

In the previous quarter, Microsoft announced that capital expenditures would significantly increase due to investments in cloud and AI infrastructure. Despite this, the company assured that FY 2024 operating margins would rise by over 2 points year-on-year, with FY 2025 margins only decreasing by about 1 point. Investors will be looking for signs of margin resilience and will want assurance that these large investments will quickly translate into profitable features, rather than long-term projects. This is critical, as seen when $Meta Platforms(META.US)$'s share price dropped after investors were skeptical about its long-term investments in AI and the metaverse.