Some of the downsides of artificial intelligence have come into clearer focus for Microsoft recently, including high-profile AI deepfakes, an FTC probe, a New York Times lawsuit, and a brief management shakeup at OpenAI, its biggest AI partner.
Can the company show AI’s potential upside for its business?
Microsoft reports earnings Tuesday afternoon, Jan. 30, for the three months ended Dec. 31, the second quarter of its 2024 fiscal year. Analysts expect revenue of more than $61 billion for the company overall, up 16% vs. the same quarter a year ago, with earnings around $2.76/share, reflecting a 19% increase in profits.
It’s part of a big tech earnings week that will also include results for Amazon, Apple, Facebook parent Meta, and Google parent Alphabet.
Microsoft 365 Copilot, the company’s flagship AI product for businesses, was made generally available on Nov. 1. This means the results in its Productivity and Business Processes segment could provide a hint, at least, for AI’s impact.
The company is charging businesses an additional $30/user per month for Microsoft 365 Copilot on top of monthly subscription plans that currently range from $12.50/user to $57/user per month.
“If you have an economy that’s around $100 trillion, we may have $7- to $10-trillion more of GDP growth driven by this next generation of AI technology,” Microsoft CEO Satya Nadella said in July, describing AI as “a massive partner opportunity.”
That’s one of the reasons that Microsoft shares are up more than 21% over the past six months, recently lifting the company to a market value of more than $3 trillion for the first time.
Amy Hood, Microsoft’s chief financial officer, called out the Microsoft 365 Copilot launch when providing financial guidance last quarter, but said the company expected the related revenue “to grow gradually over time.”
Nonetheless, the earnings report will be “a key barometer for the pace of AI spending” not just Microsoft but for the broader industry, Wedbush analyst Daniel Ives wrote in a note to clients over the weekend. He added, “Our recent partner checks have been incrementally strong around Copilot deployments with MSFT customers and ultimately we estimate this could add another ~$25 billion to Redmond’s top-line by FY25.”
In the most recent quarter, ended Sept. 30, revenue from Microsoft’s Azure OpenAI service contributed 3 percentage points to the overall growth of 29% in Azure and cloud services for the quarter, exceeding projections.
Microsoft announced a new individual paid AI subscription called Copilot Pro in mid-January, at $20 per month, but given the timing, any financial impact from that service wouldn’t show up until future quarters.
Beyond AI, other key points to watch in the earnings report will include:
- Financial impact from the company’s Activision Blizzard acquisition: The video game developer’s results included Microsoft earnings for the first time since the $69 billion deal closed in October.
- Hiring and headcount trends: Microsoft has put the brakes on hiring, except in some strategic areas, since its widespread layoffs a year ago, and has continued to cut jobs in certain parts of the company, most recently laying off 1,900 people or 9% of its gaming division, as it absorbs Activision.
- Security revenue: This has been the time of year when Nadella discloses the company’s revenue from security products ($20 billion annually as of a year ago) on the earnings call. With Microsoft recently suffering another high-profile security breach, it will be interesting to see if that practice continues.
Check back Tuesday afternoon for coverage of the results.
