What to Watch Before Microsoft Reports Its Q1 FY 2025 Earnings 

TradingKey - Any investor who’s followed the Artificial Intelligence (AI) revolution will know that Microsoft Corporation (NASDAQ: MSFT) is one of the biggest players in the space. That’s mainly down to its early backing of OpenAI, the firm that released generative AI chatbot ChatGPT.

Beyond its AI capabilities, though, Microsoft is also a giant in its own right due to a diversified business that spans cloud computing, office subscription software, and online gaming. The company has transformed itself in the past decade under the stewardship of CEO Satya Nadella. 

Given its booming business divisions, Microsoft is now worth over US$3 trillion – making it the third most valuable company in the world behind only Nvidia Corp (NASDAQ: NVDA) and Apple Inc (NASDAQ: AAPL).

As such, its earnings are closely watched and Microsoft is set to report its latest Q1 FY 2025 results (for the three months ending 30 September 2024) on Wednesday 30 October after the market closes. Here’s what investors should be watching from this tech giant.

Cloud growth one of the top metrics

In the world of cloud computing, Microsoft is second only to Amazon.com Inc (NASDAQ: AMZN) and its AWS offering. Microsoft’s own cloud computing platform – Azure – is always closely watched each quarter for its own growth rate given it’s been a big driver of both revenue and profit for the company over the past decade or so.

Azure has been able to grow its revenue consistently for years in the 30-40% range but that recently has been slowing down given its already-large revenue base. In its previous quarter (Q4 FY2024), Microsoft reported 29% year-on-year growth in Azure and other cloud services. 

While this came up marginally short of expectations for 31% growth, the company did reveal that AI services contributed around eight percentage points of that growth. This drove overall revenue growth in Microsoft’s Intelligent Cloud segment of 19% year-on-year which translated into revenue of US$28.5 billion for the period. 

Investors will be closely watching cloud growth, as usual, for the upcoming results announcement as well as any boost from AI. Back in July, Microsoft forecast Intelligent Cloud revenue of US$28.6 billion to US$28.9 billion for its Q1 FY2025 quarter.

Watch out for AI capex spend and projections

With the latest AI craze comes the need for more data centres and increased power supply. All this requires a lot of money, or capital. That has seen tech giants, like Microsoft, spending big on capital expenditure (capex). That figure is again set to be in focus for Microsoft as its Q4 FY2024 capex figure was US$19 billion, which the company said was nearly all cloud and AI-related spend.

Indeed, for the whole of FY2024 (for the year ending 30 June 2024), Microsoft’s total capex outlay was US$55.7 billion – up a whopping 75% year-on-year. That capex intensity is set to rise further as CFO Amy Hood said Microsoft’s expects to spend more on capex in FY2025 than it did in FY2024.

Whether all this capex spend results in top and bottom line growth for the business is what investors will be watching and looking for. Microsoft recently announced an “AI Copilot” feature for its Office software and claims that 2.1 million users engage with Copilot via its business applications each month. That’s a demonstration of the monetisation of Microsoft’s AI spending and investors will be hoping to see more of the same from the company on Wednesday. 

Microsoft shares are up 15.4% so far in 2024 and trail the S&P 500 Index’s return of 22.5% over the same period.