Microsoft’s MSFT first-quarter fiscal 2025 results, scheduled to be reported on Oct. 30, are likely to be driven by the consistent growth in its cloud platform, Azure. (Read Now: Microsoft Stock Before Q1 Earnings: Buy Now or Wait for Results?)
For the fiscal first quarter, Microsoft expects Intelligent Cloud revenues (Azure falls under the segment) between $28.6 billion and $28.9 billion.
Our model estimate for this segment is pegged at $28.69 billion, indicating growth of 18.3% from the figure reported in the year-ago quarter.
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Azure’s Amplification to Propel MSFT’s Top Line in Q1
Microsoft is witnessing robust demand for its cloud infrastructure monitoring, web-based application performance management and human capital management solutions. This demand is fueled by the increasing migration of workloads to the cloud.
During the fiscal fourth quarter, Azure and other cloud services revenue grew 29% (up 30% at cc), including roughly 8 points from AI services where demand remained higher than available capacity.
For the fiscal first quarter, Microsoft expects Azure revenue growth at cc between 28% and 29%, with increasing contributions from all Azure AI services.
Microsoft is witnessing an acceleration of revenues from migrations to Azure. MSFT has become the hyperscale platform of choice for SAP and Oracle workloads, with Atos, Coles, Daimler Truck AG, Domino’s and Haleon migrating their mission-critical SAP workloads to Azure.
Azure’s increased availability in more than 60 announced regions globally is expected to have strengthened this Zacks Rank #3 (Hold) company’s competitive position in the cloud computing market, dominated by Amazon’s AMZN cloud division, Amazon Web Services, and Alphabet GOOGL-owned Google Cloud. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Despite these cutting-edge AI moves, shares of Microsoft have gained 18.3% year to date compared with the broader Zacks Computer and Technology sector’s 23.8% growth amid intensifying competition from Amazon and Alphabet as they are all making aggressive moves to expand their generative AI capabilities. Shares of AMAZN and GOOGL have returned 22.7% and 30.1%, respectively.
Azure AI Gives MSFT Competitive Edge in Generative AI Market
MSFT’s AI innovation continues to build on its strategic partnership with OpenAI. Azure OpenAI Service provides access to best-in-class frontier models, including, as of this quarter, GPT-4o and GPT-4o mini. It is being used by leading companies in every industry, including H&R Block, Suzuki, Swiss Re and Telstra, as well as digital natives like Freshworks, Meesho and Zomato.
With Phi-3, Microsoft is offering a family of powerful, small language models, which are being used by companies like BlackRock, Emirates, Epic, ITC, Navy Federal Credit Union and others.
The company also continues to innovate and partner broadly to bring customers the best selection of frontier models and open-source models, LLMs and SLMs.
Microsoft’s Models as a Service offering makes it easy for developers to use LLMs and SLMs without having to manage any underlying infrastructure. Hundreds of paid customers, from Accenture and EY to Schneider Electric, are using it to take advantage of API access to third-party models, including the latest from Cohere, Meta and Mistral.
Microsoft is also integrating generative AI across Power Platform, enabling anyone to use natural language to create apps, automate workflows, or build a website. To date, more than 480,000 organizations have used AI-powered capabilities in Power Platform, up 45% quarter over quarter.
In total, Microsoft now has 48 million monthly active users of Power Platform, up 40% year over year.
The number of Azure AI customers and average spending continues to grow. In the fiscal fourth quarter, the company had more than 60,000 Azure AI customers, up nearly 60% year over year.
Growing Adoption of MSFT’s Copilot to Boost Q1 Prospects
Copilot for Microsoft 365 is becoming a daily habit for knowledge workers, as it transforms work, workflow and work artifacts. In the fiscal fourth quarter, the number of people who use Copilot daily at work nearly doubled quarter over quarter. Copilot customers increased more than 60% quarter over quarter. This trend is likely to have continued in the quarter under review.
More than 1,000 paid customers have used Copilot for Security, including Alaska Airlines, Oregon State University, Petrofac, Wipro and WTW. Microsoft now has more than 1.2 million security customers. More than 800,000, including Dell Technologies, Deutsche Telekom and TomTom, use four or more workloads, up 25% year over year.
The number of customers with over 10,000 seats more than doubled quarter over quarter, including Capital Group, Disney, Dow, Kyndryl and Novartis while EY alone will deploy Copilot to 150,000 of its employees.
Key AI Announcements in Q1
In the quarter under review, Microsoft announced a five-year multibillion-dollar strategic alliance with KT Corporation to develop AI innovations and transformations for over 650,000 businesses and 17 million consumers across Korea.
Microsoft, BlackRock, Global Infrastructure Partners and MGX announced the Global AI Infrastructure Investment Partnership to make investments in new and expanded data centers to meet the growing demand for computing power, as well as energy infrastructure to create new sources of power for these facilities.
Microsoft announced a significant advancement in its partnership with Palantir PLTR to bring some of the most sophisticated and secure cloud, AI and analytics capabilities to the U.S. Defense and Intelligence Community.
MSFT announced a collaboration with Lumen to expand its network capacity and capability to meet the growing demand for its data centers due to AI.
The launch of enterprise capabilities of Azure OpenAI and Copilots across Microsoft 365, Dynamics 365 and Power Platform is expected to have been a game changer in the fiscal first quarter.
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