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Microsoft Eyes Robust Q2 Earnings as Azure and AI Drive Growth

Word on the StreetWednesday, Jan 22, 2025 4:01 am ET

1min read

Microsoft Corp. (MSFT.US) is set to announce its second-quarter earnings post-market on January 29. Market sentiment around this tech behemoth is seeing a positive shift, largely attributed to optimistic signals from its Azure and Office divisions. Bank of America has retained a "buy" rating on Microsoft, with a target price set at $510.

Brad Sills, an analyst at Bank of America, has been evaluating feedback from key partners, which points to expected healthy revenue growth in both Azure and Office. Despite this optimistic view, feedback from Microsoft's partners suggests the quarterly performance might align more with expectations rather than surpassing them.

Sills highlighted that the second-quarter revenue could potentially exceed their forecast of $68.6 billion—representing a 10.1% year-on-year growth at constant currency—by approximately 0% to 1%. This anticipated positive variance is driven by steady project migration to Azure and the sustained momentum in E3/E5 upgrade cycles.

Furthermore, Sills projected Azure revenues to grow year-on-year by 32.5% at constant currency, with artificial intelligence contributing 13 percentage points to this growth. He further mentioned that driven by consistent upgrade cycles and the rising momentum of Copilot developments, the sales from the productivity and business processes sector, inclusive of Office 365, are expected to expand by 11% year-on-year at constant currency.

Sills also noted the potential for Microsoft to uplift its fiscal 2025 profit margin expectations, fueled by artificial intelligence advancements. As AI accelerates growth in core business segments, encompassing applications and infrastructure, Azure's return on capital expenditure is witnessing a steady rise.

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