Microsoft will report its fiscal third-quarter results after the bell on Wednesday, with investors closely watching Azure's growth trajectory and the returns on its massive artificial intelligence investments. The company lost $357 billion in market value following its last earnings report, despite strong revenue and profit figures, as shareholders grew impatient with the pace of AI monetization.
The software giant faces heightened scrutiny after revising its partnership with OpenAI on Monday. Under the new terms, Microsoft's license to OpenAI's intellectual property is no longer exclusive, and the revenue-sharing structure has been altered. OpenAI will continue to debut products on Microsoft's Azure cloud, but can now also offer them through other providers if Azure cannot meet specific requirements. Microsoft will stop paying a revenue share to OpenAI, while OpenAI will continue sharing revenue with Microsoft through 2030 up to a certain limit.
Wall Street analysts expect Microsoft to report revenue of approximately $81.4 billion, with adjusted earnings per share between $4.06 and $4.07. The company's own guidance projected revenue in the range of $80.65 billion to $81.75 billion, representing 15% to 17% growth year-over-year.
Azure's performance will be the key metric. Microsoft forecast 37% to 38% revenue growth for Azure and other cloud services on a constant-currency basis, a slight deceleration from the 39% growth recorded last quarter. Guggenheim analyst John DiFucci maintains a Buy rating with a $586 price target but cautions that shares could decline if Azure growth falls short of the guided range.
Capital expenditure remains a concern. On the last earnings call, CFO Amy Hood reported capex of $37.5 billion, with about two-thirds allocated to short-lived assets such as GPUs and CPUs. She noted that customer demand continues to outstrip supply. Investors will be watching for any signs that spending is moderating from that elevated level.
Microsoft's commercial remaining performance obligation, a measure of future revenue, reached $625 billion last quarter. However, OpenAI accounted for roughly 45% of that backlog, highlighting concentration risk. The remainder grew 28% year-over-year.
Copilot, Microsoft's AI assistant, still represents a small portion of the business. As of January, paid Copilot users numbered 15 million, just 3.3% of the Microsoft 365 commercial customer base, which exceeds 450 million seats.
Wedbush analyst Dan Ives viewed the OpenAI deal revision positively, suggesting it could pave the way for an OpenAI initial public offering while giving Microsoft more flexibility to develop its own AI capabilities and work with other vendors like Anthropic.
Microsoft's results will be released alongside earnings from Alphabet, Amazon, and Meta, providing a comprehensive view of cloud market dynamics and AI spending across the sector. The stakes are high: a miss on Azure growth, sluggish Copilot adoption, or sustained high capex could pressure the stock, even with solid overall numbers.
In a cost-cutting move, Microsoft has initiated its first-ever voluntary employee buyout program, targeting U.S. staff at or below senior director level whose age and tenure sum to at least 70, according to Reuters. The company did not comment on the report.
