Microsoft Eyes Record Growth with AI-Infused Products and Cloud Dominance

Microsoft (MSFT.O) is anticipated to announce a robust 15.8% increase in quarterly revenue, marking its most substantial growth in nearly two years. The surge is attributed to the growing adoption of products infused with generative AI, driving demand for the company's cloud services.

With an early lead in artificial intelligence, Microsoft is poised to solidify its position as the largest company by market value this year, surpassing Apple (AAPL.O) with a valuation of $3 trillion.

The upcoming results from Microsoft, a major investor in generative AI pioneer OpenAI and the creator of ChatGPT, will set the tone for expectations in the AI sector for the year. Investors, who poured billions into AI technology in 2023, will closely monitor whether these investments are beginning to yield returns.

While analysts suggest that any boost to companies' revenues may be modest in the coming months, the market is keen to assess the impact of AI investments. Morgan Stanley analyst Keith Weiss highlights that "Gen AI" has become a top priority for chief information officers, and Microsoft is well-positioned, with a majority of CIOs expected to use a Microsoft AI product in the next 12 months.

Microsoft has recently introduced its main AI tool, "Copilot," priced at $30 a month for its Microsoft 365 service. This tool assists in drafting emails, creating presentations, and compiling meeting highlights. Jefferies analyst Brent Thill predicts an increase in AI contribution to Azure growth, emphasizing strong demand for Azure AI services.

The growth in Microsoft's cloud business is gaining momentum, with customers purchasing computing power in anticipation of utilizing AI services. This has allowed Azure to gain market share against competitors like Amazon.com's (AMZN.O) AWS and Alphabet's (GOOGL.O) Google Cloud.

Microsoft projected a 26% to 27% growth for Azure in the second quarter, and analysts from Visible Alpha expect a growth rate of 27.7%. The company's cloud business gross margin for the December quarter is expected to remain mostly flat from the previous year, reflecting investments in expanding AI infrastructure to meet increasing demand.

A recovery in the personal computers market is anticipated to boost revenue growth in Microsoft's Windows and devices business to the highest level in four years. The company forecasts second-quarter sales growth of about 16% to 19% for its Windows-based business segment, which includes the recent acquisition of gaming firm Activision.

Microsoft's shares saw a 57% increase last year, contributing to a 24% surge in the S&P 500 (.SPX) alongside other tech stocks like Alphabet and Nvidia (NVDA.O) in 2023.