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Microsoft Q4 Earnings Preview

Microsoft's AI Model ChatGPT, backed by OpenAI, has seen Microsoft gradually become a leading company in the field of artificial intelligence, resulting in a 58.7% increase in its stock price in 2023.

In the third quarter of the 2024 fiscal year, as reported in the October earnings release, revenue increased by 13% to $565.2 billion, with a net profit growth of 27% to $22.29 billion. Notably, Intelligent Cloud revenue showed strong performance, growing 19% to $24.3 billion, accounting for 43% of the overall revenue. Azure and other cloud services revenue increased by 28% (calculated at a fixed exchange rate).

Q2 Fiscal Year 24 Earnings Outlook

Microsoft is set to release its financial performance for the second quarter of the 2024 fiscal year after the U.S. market closes on January 30, 2024.

According to Zacks consensus estimates, revenue is expected to be $610.3 billion, a 15.7% year-over-year increase, with an expected earnings per share of $2.76, an 18.5% year-over-year growth.

Microsoft's management anticipates Azure's growth to reach 26% to 27% in the second quarter. The company continued its upward trajectory in January 2024, surpassing Apple to become the world's most valuable company with a market capitalization close to $2.9 trillion. This reflects investor confidence in the future development of the artificial intelligence field.

Recently, Microsoft announced the launch of Copilot Pro for the M365 Family and Personal edition, priced at $20 per month. This means individual users can now access the latest OpenAI models. Additionally, Copilot for the enterprise has eliminated the minimum purchase requirement for corporate users, indicating potential growth in small and medium-sized enterprise customers.

How Could the Stock Perform?

The potential growth of M365 users and Azure services in 2024 may propel Microsoft's market capitalization beyond $3 trillion, making it a matter of time. Microsoft's leadership in the AI field may secure its position as the global market leader. Meanwhile, its competitor Apple faces challenges with declining iPhone 15 sales and sluggish adoption of Vision Pro.

Currently, it seems Apple may need to find new growth points to support its stock price, but due to its relatively subdued noise in the AI field, a turnaround could be difficult to foresee, leading to some rating downgrades by investment banks. Currently, Microsoft's P/E ratio has reached 37 times, higher than the five-year average of 30 times and the ten-year average of 24 times. In the short term, the high P/E ratio reflects optimistic expectations of investors for the future.

However, some potential risks are being overlooked, including:

  1. Downward pressure on macro fundamentals, with some data signaling a recession warning, such as non-manufacturing PMI on the verge of contraction
  2. The slowdown of corporate digital transformation in a downturn, potentially affecting Azure's growth
  3. Slowed spending by residents and small businesses in a high-interest-rate environment, leading to a slowdown in M365 sales growth
  4. Increased competition in the AI field, potentially further weakening Microsoft's operating system share
  5. Challenges in supporting the current high valuation levels due to growth pressures in the PC business.


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