Microsoft’s slowest revenue growth in a year amid AI investment concerns

Microsoft is expected to report its slowest quarterly revenue growth in a year on Wednesday, amid growing investor concerns over the slow return on significant investments in AI. Widely regarded as a frontrunner in generative AI, partly due to its investment in ChatGPT-owner OpenAI, the software giant is facing slow adoption for key products like the $30-per-month Copilot assistant for enterprises.

Morgan Stanley analysts have expressed concerns about Microsoft’s earnings, highlighting increased capital expenditures, margin compression, lack of clear AI returns, and complexities following a financial re-segmentation. The upcoming results are the first since Microsoft restructured its business reporting in August to better align with management practices, complicating last quarter’s performance estimates.

Since its last earnings report in late July, Microsoft’s stock has risen by just about 1%, underperforming the S&P 500, although it remains around 14% higher for the year. Analysts surveyed by Visible Alpha expect Microsoft’s Azure cloud-computing unit to have grown by 33% in the fiscal first quarter ended September 30, aligning with company expectations but slightly lower than the previous quarter.

Despite AI’s increased contribution to Azure, accounting for 11 percentage points of growth in the fourth quarter, overall business growth has slowed. In July, Microsoft projected that Azure growth would accelerate in the second half of the fiscal year.

Analysts polled by LSEG anticipate that Microsoft’s total revenue for the September quarter rose by 14.1% to $64.51 billion. However, like its AI competitors, Microsoft has indicated that spending on the technology will remain high. Visible Alpha estimates that capital spending for the September quarter jumped 71.7% to $19.23 billion.