Microsoft AI Under the Microscope: Investors Weigh In on Soaring Demand

Markets expect Microsoft to report its slowest quarterly revenue growth in a year on Wednesday. That’s as investors wait for signs of demand from the company for its artificial intelligence products amid growing concerns about slow returns on key investments in the technology.

Microsoft is widely regarded as a leader in the race to leverage generative AI, thanks to its investment in OpenAI, the creator of ChatGPT. However, recent analyst assessments show that adoption of its core products, including Copilot assistants, has been slow.

Morgan Stanley analysts said there was a “wall of concern” surrounding Microsoft’s earnings, pointing to “growing investments, margin pressure, and a lack of evidence for AI returns.”

The results, to be released on Wednesday, are the first since Microsoft overhauled the way it discloses its business numbers in August to more closely align them with how it manages them. However, these changes have made it more difficult to estimate the company’s performance over the past quarter.

Microsoft shares have risen only about 1% since it last reported results in late July, significantly underperforming the benchmark S&P 500 index. However, the company’s stock price is up about 14% so far this year.

Microsoft’s Azure cloud computing division is expected to grow 33% in the first quarter of the company’s fiscal year, which ends Sept. 30, according to seven analysts surveyed by Visible Alpha. Although this is in line with the company’s expectations, it is slightly lower than the previous quarter’s performance.

AI’s contribution to the Azure unit increased, accounting for 11% growth in the fourth quarter, but overall business slowed. Microsoft said in July that it expects Azure growth to accelerate in the second half of its fiscal year.

The market expects Microsoft’s total revenue to rise 14.1% to $64.51 billion in the September quarter, according to analysts consulted by Lseg.

Analysts expect Microsoft to report investments worth $19.23 billion, up 71.7% in the last quarter, according to Visible Alpha.

Skepticism about co-pilots

Copilot didn’t take off as Microsoft expected. A survey of 152 information technology companies found that the majority had not advanced their Copilot initiatives beyond the pilot phase.

However, some analysts believe that Microsoft’s recent plans, which include the ability to create autonomous AI agents that can perform routine tasks without human intervention with the help of Copilot, could drive the adoption of assistants.

“Most investors seem skeptical about 365 Copilot adoption,” said Ben Reitzes, analyst at Melius Research. “But Copilot’s data points seem to be getting a little better.” He added that the assistant “boasts an increasingly better client list.”

Microsoft’s Productivity and Business Processes division, which includes Office products and LinkedIn and 365 Copilot, is expected to post 12% quarterly growth, according to Mark Moerdler, chief analyst at Bernstein. According to Lseg, the company’s.