Microsoft (MSFT) will report earnings for its fiscal third quarter after the bell on Tuesday as the company continues to ride the generative AI hype train while a decline in cloud revenue could spoil the tech giant’s quarter.
Here’s what Wall Street analysts are expecting from the company with expectations also compared to the same quarter last year, according to data from Bloomberg
Revenue: $51.1 billion expected vs. $49.3 billion in Q3 2022
Adj. EPS: $2.23 expected vs. $2.22 in Q3 2022
Productivity and Business processes: $17.1 billion expected vs. $15.8 billion in Q3 2022
Intelligent Cloud: $21.9 billion expected vs. $19.1 billion in Q3 2022
More Personal Computing: $12.3 billion expected vs. $14.5 billion in Q3 2022
Microsoft helped kick off Big Tech’s AI obsession with its multi-year, multi-billion dollar investment in ChatGPT developer OpenAI.
That’s given Microsoft a perceived leadership position in the AI wars, leaving rival Alphabet’s Google (GOOG, GOOGL) playing catch up. Amazon (AMZN), meanwhile, is working to bring generative AI to its services, while Facebook parent Meta (META) is cobbling together teams to kick start its own efforts.
And while Microsoft’s stock has seemingly benefited from both the AI hype and overall market rebound after a rough 2022, the company’s main growth driver continues to be its cloud computing efforts in its Azure unit.
But that growth has slowed markedly over the last year. In Q2 2022, Microsoft reported year-over-year server products and cloud services revenue growth touched 29%. But as of Q2 2023, revenue growth fell to 20% when including the impact of currency fluctuations.
Part of the reason for this decline was large customers pulling back on spending as higher interest rates challenged global growth. Microsoft is also contending with flagging PC sales, as demand from consumers and business customers falls from pandemic-era highs.
According to Gartner, worldwide PC shipments declined a stunning 30% in the first quarter of this year to 55.2 million units.
Analysts are calling for revenue in Microsoft’s More Personal Computing segment, which includes sales of Windows to third-party PC makers, to drop 15.5% year-over-year to $12.3 billion from $14.5 billion in the same period last year.
Analysts and investors will also be on the lookout for the impact of Microsoft’s January layoffs on the company’s bottom line. The firm cut 10,000 positions across its various business segments as it attempts to reconfigure its workforce after over-hiring during the pandemic.