Microsoft’s Q2 Earnings Preview: Azure Cloud Growth Takes Center Stage
Microsoft is set to report its second-quarter fiscal 2025 results on January 29, with expectations that robust growth in its cloud platform, Azure, will play a crucial role. (Read Now: Microsoft Stock Before Q2 Earnings: A Smart Buy or Risky Investment?)
For this fiscal second quarter, Microsoft anticipates Intelligent Cloud revenues, which include Azure, to fall between $25.55 billion and $25.85 billion.
The forecast for this segment is $25.69 billion, suggesting an impressive growth rate of 19.4% compared to the same quarter last year.
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Azure Cloud Demand Fuels Microsoft’s Q2 Expectations
Microsoft is experiencing strong demand for its various cloud services, including infrastructure monitoring and human capital management solutions. This upsurge is largely due to the ongoing trend of businesses moving their operations to the cloud.
In the previous fiscal quarter, Azure and other cloud services saw revenue growth of 33% (34% at constant currency), with AI services contributing about 12 percentage points to that growth as demand consistently outpaced capacity.
For the current fiscal quarter, Azure’s revenue growth is projected to be between 31% and 32% at constant currency, driven by contributions from various AI services.
With Azure expanding its availability to over 60 regions worldwide, Microsoft’s position in the competitive cloud computing market — where Amazon’s AMZN cloud division and Alphabet GOOGL’s Google Cloud lead — appears to be strengthening.
Despite these advancements in AI, Microsoft’s stock has increased by only 9.7% over the past year, in contrast to the broader Zacks Computer and Technology sector’s 28% growth. In comparison, AMZN and GOOGL stocks have surged by 48.9% and 31.8%, respectively.
Azure AI Drives Microsoft’s Competitive Advantage
Microsoft’s AI developments are made stronger through its strategic collaboration with OpenAI. In recent months, usage of Azure OpenAI has more than doubled, as digital startups like Grammarly and established companies such as Bajaj Finance and Hitachi shift their applications to production.
For instance, GE Aerospace implemented Azure OpenAI to create a digital assistant for its 52,000 employees, which facilitated over 500,000 internal inquiries and processed more than 200,000 documents within three months.
In the last fiscal quarter, Microsoft expanded support for OpenAI’s latest model family. Additionally, it is introducing industry-specific versions of Azure AI, including advanced models for medical imaging.
Microsoft’s generative AI tools are also being integrated into its Power Platform, allowing customers to utilize low-code and no-code solutions effectively. By the end of September, nearly 600,000 organizations were leveraging AI features in Power Platform, a fourfold increase from the previous year.
Growing Popularity of Microsoft’s Copilot to Support Q2 Growth
Copilot for Microsoft 365 is rapidly becoming essential for knowledge workers by transforming daily tasks and workflows. Almost 70% of Fortune 500 companies now utilize Microsoft 365 Copilot, and its adoption is rising faster than any other recent Microsoft 365 product.
In the last fiscal quarter, the number of monthly active users of Copilot across CRM and ERP platforms jumped more than 60% from the previous quarter. This momentum is expected to continue into the current review period.
New Copilot+ PCs are attracting additional customers, with support from AMD, Intel, and Qualcomm.
Microsoft has also announced limited access to Copilot Vision, which allows users to ask questions about websites visited on Microsoft Edge, available to U.S. customers.
Major AI Initiatives Announced in Q2
Recently, Microsoft revealed a partnership with Accenture ACN and Avanade to create a copilot business transformation process designed to help organizations innovate through generative AI.
Additionally, Microsoft joined forces with Rezolve AI to enhance retailers’ digital engagement through advanced capabilities and will provide marketing and technical support over the next five years to boost Rezolve AI’s market presence.
MSFT also unveiled a five-year, multibillion-dollar alliance with KT Corporation, aiming to introduce AI solutions for over 650,000 businesses and 17 million consumers in Korea.
Furthermore, Microsoft committed €4.3 billion over two years in Italy to escalate its AI data center and cloud infrastructure.
Despite these advances, Microsoft currently holds a Zacks Rank #4 (Sell).
You can view a complete list of today’s Zacks #1 Rank (Strong Buy) stocks.
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