Three Big Things To Watch For As Microsoft Reports Earnings

Three Big Things To Watch For As Microsoft Reports Earnings
Paul Allison, CFA

8 months ago2 mins

It’s a Big Tech earnings week – and Tuesday night, it’s Microsoft’s turn. Here’s what to look for, how to pick out the devil (or angel) in the details, and how the stock price might react.

One big thing to watch is the performance of Microsoft’s cloud services business Azure. Its revenue growth has been slowing in the past year, as you can see from the chart. and in its last quarterly update, the software giant warned that the slowdown would continue – forecasting a fall to around 26%. Now, if Azure notches growth of better than, say, 27%, you can expect a nice immediate pop in the shares, but if it comes in much worse than 25%, you can reasonably fear the opposite.

You’ll also want to pay attention to what the firm says in its post-results conference call about Azure’s revenue growth – whether it’s expected to pick up or slow down again – in the current quarter. See, how Azure has fared is important, but how it’s going to fare is more important: any hint that the slowdown’s ended will be loudly cheered by the market.

Another big thing to watch is artificial intelligence (AI). In fact, for a bit of fun, you might even count how many times CEO Satya Nadella says “artificial intelligence” (or “AI”) on the conference call (or ask ChatGPT to count for you). See, right now, Microsoft’s out front in the AI arms race, and frantically integrating OpenAI’s ChatGPT into its core software products. So investors will have their antennae up for early reads on these efforts. Specifically, they’ll want to hear if AI’s having any impact on Azure growth rates.

And lastly, keep an eye on margins. Microsoft has done a good job of keeping revenue growth and expense growth in sync, and margins have held up nicely as a result. (It’s part of the reason why you haven’t seen Microsoft make any major job-cutting headlines.) Investors’ll want to see that growth sync continue. Any talk about a meaningful expenses ramp up (say, to fund AI expansion plans) without talk about an offsetting revenue growth acceleration at Azure, for example, will certainly raise an eyebrow or two...



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