Investors expect a return on Microsoft’s AI investment

Before reporting its latest quarter, which is expected to show its slowest growth rate in a year, Microsoft shareholders want to see real signs of demand for the AI applications in which the company has invested billions of dollars. Microsoft will report its quarterly results on Wednesday, and investors are already expressing concern about the slow return on big investments in artificial intelligence technology. While Microsoft has maintained a lead in the race to adopt generative AI, including through its partnership with OpenAI, the maker of ChatGPT, recent data shows that the company’s key products, such as its $30-a-month corporate assistant Copilot, have so far been slower than expected to be adopted.

Microsoft’s recent results show that the company’s key products, such as its $30-a-month corporate assistant Copilot, are still being adopted more slowly than expected.

Analysts at Morgan Stanley note that a “wall of worry” has formed around Microsoft’s report due to high capital expenditure, declining margins, lack of clear benefits from AI and ambiguity following financial restructuring reporting. This quarter is the first in which the company is reporting under a new format more closely tied to operational management. However, the transition makes it more difficult to analyze last quarter’s results.

So far, it’s not the first time the company has reported under the new format.

Low stock growth and Azure’s performance

Microsoft shares are up just 1% since the last report in July, well below the rise in the S&P 500 index, but they’re still up 14% since the beginning of the year. Analysts at Visible Alpha believe the Azure cloud segment grew 33% for its fiscal first quarter ended Sept. 30. While that figure is in line with the company’s expectations, it’s slightly below the company’s fourth-quarter results.

India projects integrated into Azure contributed 11 percent of its growth in the fourth quarter, but the overall Azure business slowed. Microsoft said in July that it expected Azure growth to accelerate in the second half of its fiscal year. Analysts forecast that Microsoft’s total revenue grew 14.1 percent to $64.51 billion for the September quarter.

Analytics.

High capital expenditures

The company has already warned that AI spending will remain as high as its competitors. Microsoft’s capital expenditures are expected to rise 71.7% in the September quarter to $19.23 billion, according to Visible Alpha.

According to Visible Alpha.

Difficulties with Copilot

The Copilot assistant hasn’t gotten the widespread adoption Microsoft had hoped for. According to Gartner, most of the 152 IT companies surveyed have not progressed beyond pilot projects in using Copilot. However, some analysts believe that the introduction of new features, such as autonomous AI agents, could increase interest in Copilot.

Some analysts believe that the introduction of new features, such as the creation of autonomous AI agents, could increase interest in Copilot.

“Most investors are skeptical of 365 Copilot because they don’t use it themselves,” said Melius Research analyst Ben Reitzes. Still, he noted that Copilot’s usage rates are gradually improving, and the list of customers using the assistant is growing.

And the list of customers using the assistant is growing.

Business Unit Forecasts

The Productivity and Business Processes segment, which includes Office, LinkedIn and Copilot 365, is projected to grow revenue by 12% quarter-over-quarter, according to Bernstein analyst Mark Murdler. The Intelligent Cloud segment, which includes Azure, is also likely to show a 20% quarter-over-quarter growth.

So far, the Intelligent Cloud segment, which includes Azure, is also likely to show a 20% quarter-over-quarter growth.

As for the Personal Computing segment, which includes Windows and gaming, a slight increase is expected due to the stabilization of the PC market.

And the Personal Computing segment, which includes Windows and gaming, is expected to grow slightly due to the stabilization of the PC market.