Microsoft’s MSFT fourth-quarter fiscal 2024 results, scheduled to be reported on Jul 30, are likely to be driven by the consistent growth in its cloud platform, Azure. (Read Now: Should You Buy, Sell or Hold Microsoft Before Q4 Earnings?)
For the fiscal fourth quarter, Microsoft expects Intelligent Cloud revenues (Azure falls under the segment) between $28.4 billion and $28.7 billion.
Our model estimate for this segment is pegged at $28.54 billion, indicating growth of 19% from the figure reported in the year-ago quarter.
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Azure's Continued Growth to Propel MSFT's Top Line in Q4
Microsoft is witnessing robust demand for its cloud infrastructure monitoring, web-based application performance management and human capital management solutions. This demand is fueled by the increasing migration of workloads to the cloud.
During the fiscal third quarter, Azure and other cloud services revenue grew 31% (up 31% at cc), including roughly 7 points from AI services, which was higher than the previous quarter's 30% (28% at cc).
For the fiscal fourth quarter, Microsoft expects Azure revenue growth at cc between 30% and 31%, with increasing contributions from all Azure AI services.
Microsoft is witnessing an acceleration of revenues from migrations to Azure. MSFT has become the hyperscale platform of choice for SAP and Oracle workloads, with Conduent and Medline moving their on-premises Oracle estates to Azure, and Kyndryl and L’Oreal migrating their SAP workloads to Azure.
The company is seeing an acceleration in the number of large Azure deals from leaders across industries, including billion-dollar-plus multi-year commitments announced recently from Cloud Software Group and The Coca-Cola Company. In the fiscal third quarter, the number of 100 million dollar-plus Azure deals increased more than 80% year over year, while the number of 10 million dollar-plus deals more than doubled.
Azure's increased availability in more than 60 announced regions globally is expected to have strengthened the tech giant's competitive position in the cloud computing market, dominated by Amazon’s AMZN cloud division, Amazon Web Services (“AWS”), and Alphabet GOOGL-owned Google Cloud.
In the last reported quarter, AWS revenues (18% of sales) rose 17% year over year to $25.04 billion. The expansion of AWS' portfolio has been helping Amazon maintain its dominance in the cloud domain by gaining more customers.
Alphabet's Google Cloud revenues rose 28.4% year over year to $9.6 billion, accounting for 11.9% of the quarter’s total revenues. Google Cloud reported operating income of $900 million compared with $191 million in the year-ago quarter.
Azure AI Gives MSFT Competitive Edge in Generative AI Market
MSFT’s AI innovation continues to build on its strategic partnership with OpenAI. More than 65% of the Fortune 500 now use Azure OpenAI Service. The company also continues to innovate and partner broadly to bring customers the best selection of frontier models and open-source models, LLMs and SLMs.
The number of Azure AI customers and average spend continue to grow. More than half of Azure AI customers also use the company’s data and analytics tools. Customers are building intelligent applications running on Azure PostgreSQL and Cosmos DB, with deep integrations with Azure AI.
In the quarter under review, Microsoft announced an expanded strategic alliance with ServiceNow NOW, combining its industry-leading generative AI capabilities to enhance employee choice and flexibility.
Microsoft announced a $3.3 billion investment designed to strengthen the role of Southeast Wisconsin as a hub for AI-powered economic activity, innovation and job creation. The company also invested $1.5 billion in G42, a leading UAE-based AI technology holding company, to enhance the country's position as a global AI hub.
Despite these cutting-edge AI moves, shares of this Zacks Rank #3 (Hold) company have gained 18.3% year to date compared with the broader Zacks Computer and Technology sector’s 23.8% growth amid intensifying competition from Amazon and Alphabet as they are all making aggressive moves to expand their generative AI capabilities. Shares of AMAZN and GOOGL have returned 22.7% and 30.1%, respectively. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The launch of enterprise capabilities of Azure OpenAI and Copilots across Microsoft 365, Dynamics 365 and Power Platform is expected to be a game changer. New Azure AI Studio is becoming the tool of choice for AI development in this new era, helping organizations ground, fine-tune, evaluate and deploy models, and do so responsibly.
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