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Slow Growth in Azure to Impact Microsoft's (MSFT) Q4 Earnings
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Microsoft’s (MSFT - Free Report) fourth-quarter fiscal 2023 results, scheduled to be reported on Jul 25, are likely to be driven by continued yet slow growth in its cloud platform, Azure.
For the fiscal fourth quarter, Microsoft expects Intelligent Cloud revenues (Azure falls under the segment) in constant currency (cc) to increase between 15% and 16% to $23.6-$23.9 billion.
Microsoft warned that revenue growth from Azure, the cloud computing platform that has become one of the main engines of its business, can have quarterly variability primarily from per user business and in-period revenue recognition depending on the mix of contracts.
Our model estimate for Intelligent Cloud revenues is currently pegged at $23.6 billion, indicating 13.6% growth from the figure reported in the year-ago quarter.
Sluggish yet Continued Growth in Azure to Drive Top Line
Microsoft’s cloud service has been benefiting from continued demand for cloud infrastructure monitoring, web-based application performance management and human capital management solutions, fueled by the increasing migration of workloads to the cloud.
In the fiscal third quarter, Azure and other cloud services revenues grew 27% and 31% in cc, respectively, driven by growth in the consumption-based business.
For the fiscal fourth quarter, Microsoft expects Azure revenue growth in the range of 26% to 27% in cc, including roughly 1 point from AI services. Azure OpenAI Service brings together advanced models, including ChatGPT and GPT-4, with the enterprise capabilities of Azure.
Improvement could be slow in the current scenario but the longer-term upward trend remains intact, as companies may prioritize digital transformation in its reduced budget to prepare for subsequent recovery.
MSFT’s Azure has a presence in more than 60 regions worldwide and is available in 140 countries. Azure’s increase is anticipated to have bolstered this Zacks Rank #3 (Hold) company’s cloud business and strengthened its competitive position against Amazon’s (AMZN - Free Report) Amazon Web Services (“AWS”) and Alphabet’s (GOOGL - Free Report) Google Cloud. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the last reported quarter, AWS revenues (17% of sales) rose 16% year over year to $21.3 billion. Operating income for AWS was $5.4 billion, down 21.4% year over year. The expansion of its AWS portfolio has been helping Amazon maintain its dominance in the cloud domain by gaining more customers.
Alphabet’s Google Cloud revenues rose 28% year over year to $7.45 billion, accounting for 10.7% of the quarter’s total revenues. Google Cloud reported operating income of $191 million compared with a loss of $706 million in the year-ago quarter.
Microsoft Leads Generative AI Race
In May, Microsoft has announced the integration of Bing Search into OpenAI's ChatGPT in order to provide more relevant and potentially new responses. The company also announced a common plugin platform in collaboration with OpenAI and introduced new plugin partners.
The integration of Bing Search with ChatGPT is a significant step in MSFT's continuous endeavor to enhance the search experience for its users. This integration enables users to access up-to-date information from the web, accompanied by citations similar to the AI chatbot in Bing search. These citations provide users with the ability to verify the accuracy of the answers they receive.
The company also announced a suite of new AI solutions and enhancements to Microsoft Cloud for Non-profit to help fundraisers in interacting with donors, manage campaigns and optimize operations.
Giants like Alphabet’s Google, Meta Platforms (META - Free Report) and Amazon have invested a lot in AI in recent years.
Google has dedicated several years to develop a large language model-based generative AI, which is similar to the technology-driven ChatGPT. It has been at the forefront of pioneering essential components of this technology.
Meta Platforms, the parent company of Facebook, has heavily invested in AI technology, employing it for various purposes, such as ranking News Feed items, content moderation and text translation.
However, two recent public demonstrations of Meta's generative AI projects faced challenges. Blenderbot, similar to ChatGPT, received criticism for generating low-quality output and being susceptible to embracing conspiracy theories. Additionally, Galactica, a research-focused project, faced negative reception due to inaccuracies in its performance.
Amazon harnesses AI technology for various applications like voice recognition in Alexa and warehouse optimization. It has not rushed to embrace generative AI like ChatGPT.
Image: Bigstock
Slow Growth in Azure to Impact Microsoft's (MSFT) Q4 Earnings
Microsoft’s (MSFT - Free Report) fourth-quarter fiscal 2023 results, scheduled to be reported on Jul 25, are likely to be driven by continued yet slow growth in its cloud platform, Azure.
For the fiscal fourth quarter, Microsoft expects Intelligent Cloud revenues (Azure falls under the segment) in constant currency (cc) to increase between 15% and 16% to $23.6-$23.9 billion.
Microsoft warned that revenue growth from Azure, the cloud computing platform that has become one of the main engines of its business, can have quarterly variability primarily from per user business and in-period revenue recognition depending on the mix of contracts.
Our model estimate for Intelligent Cloud revenues is currently pegged at $23.6 billion, indicating 13.6% growth from the figure reported in the year-ago quarter.
Microsoft Corporation Price and EPS Surprise
Microsoft Corporation price-eps-surprise | Microsoft Corporation Quote
Sluggish yet Continued Growth in Azure to Drive Top Line
Microsoft’s cloud service has been benefiting from continued demand for cloud infrastructure monitoring, web-based application performance management and human capital management solutions, fueled by the increasing migration of workloads to the cloud.
In the fiscal third quarter, Azure and other cloud services revenues grew 27% and 31% in cc, respectively, driven by growth in the consumption-based business.
For the fiscal fourth quarter, Microsoft expects Azure revenue growth in the range of 26% to 27% in cc, including roughly 1 point from AI services. Azure OpenAI Service brings together advanced models, including ChatGPT and GPT-4, with the enterprise capabilities of Azure.
Improvement could be slow in the current scenario but the longer-term upward trend remains intact, as companies may prioritize digital transformation in its reduced budget to prepare for subsequent recovery.
MSFT’s Azure has a presence in more than 60 regions worldwide and is available in 140 countries. Azure’s increase is anticipated to have bolstered this Zacks Rank #3 (Hold) company’s cloud business and strengthened its competitive position against Amazon’s (AMZN - Free Report) Amazon Web Services (“AWS”) and Alphabet’s (GOOGL - Free Report) Google Cloud. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the last reported quarter, AWS revenues (17% of sales) rose 16% year over year to $21.3 billion. Operating income for AWS was $5.4 billion, down 21.4% year over year. The expansion of its AWS portfolio has been helping Amazon maintain its dominance in the cloud domain by gaining more customers.
Alphabet’s Google Cloud revenues rose 28% year over year to $7.45 billion, accounting for 10.7% of the quarter’s total revenues. Google Cloud reported operating income of $191 million compared with a loss of $706 million in the year-ago quarter.
Microsoft Leads Generative AI Race
In May, Microsoft has announced the integration of Bing Search into OpenAI's ChatGPT in order to provide more relevant and potentially new responses. The company also announced a common plugin platform in collaboration with OpenAI and introduced new plugin partners.
The integration of Bing Search with ChatGPT is a significant step in MSFT's continuous endeavor to enhance the search experience for its users. This integration enables users to access up-to-date information from the web, accompanied by citations similar to the AI chatbot in Bing search. These citations provide users with the ability to verify the accuracy of the answers they receive.
The company also announced a suite of new AI solutions and enhancements to Microsoft Cloud for Non-profit to help fundraisers in interacting with donors, manage campaigns and optimize operations.
Giants like Alphabet’s Google, Meta Platforms (META - Free Report) and Amazon have invested a lot in AI in recent years.
Google has dedicated several years to develop a large language model-based generative AI, which is similar to the technology-driven ChatGPT. It has been at the forefront of pioneering essential components of this technology.
Meta Platforms, the parent company of Facebook, has heavily invested in AI technology, employing it for various purposes, such as ranking News Feed items, content moderation and text translation.
However, two recent public demonstrations of Meta's generative AI projects faced challenges. Blenderbot, similar to ChatGPT, received criticism for generating low-quality output and being susceptible to embracing conspiracy theories. Additionally, Galactica, a research-focused project, faced negative reception due to inaccuracies in its performance.
Amazon harnesses AI technology for various applications like voice recognition in Alexa and warehouse optimization. It has not rushed to embrace generative AI like ChatGPT.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.