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Microsoft Poised For Strong Q4 Earnings As AI Growth Takes Center Stage

Analysts expect EPS of $2.55 and revenue of $55.47B, with AI monetization seen as key driver of future growth.

Technology giant Microsoft Corp (NASDAQ: MSFT) will report fourth quarter and full-year financial results after market close Tuesday.

Here’s a look at the earnings estimates and what analysts are saying ahead of the report.

Consensus estimates from analysts see Microsoft reporting earnings per share of $2.55 and revenue of $55.47 billion, according to data from Zenger News Pro.

Microsoft reported earnings per share of $2.23 in the fourth quarter of the last fiscal year and reported earnings per share of $2.45 in the most recently reported third quarter.

Revenue from Microsoft totaled $51.87 billion in last year’s fourth quarter and third quarter revenue totaled $52.86 billion in the most recently reported third quarter.

The company sees fourth-quarter revenue coming in a range of $54.85 billion to $55.85 billion, according to its third-quarter earnings report.

Microsoft has beaten earnings per share estimates from analysts in each of the last three quarters and nine of the last 10 quarters overall, according to Zenger News Pro.

The company has beat revenue estimates from analysts in eight of the last 10 quarters but missed estimates in two of the last four quarters.

Microsoft CEO Satya Nadella highlighted the opportunity of artificial intelligence for the company during its third-quarter earnings report.

ChatGPT will be the next leg of the growth stool for MSFT. CFOTO/GETTY IMAGES 

“The world’s most advanced AI models are coming together with the world’s most universal user interface — natural language — to create a new era of computing,” Nadella said.

Even with shares of Microsoft up significantly in 2023, analysts have been raising their price targets throughout the year.

Goldman Sachs and analyst Kash Rangan reiterated a Buy rating and raised the price target from $350 to $400 ahead of Microsoft’s fourth-quarter financial results.

The analyst saw an expanded Microsoft 365 addressable market as one of the key catalysts.

“As Microsoft 365 Copilot will be launched into a base of +380 million users for $30/user/month, we size the TAM at +$135 billion long-term,” Rangan said. “We estimate Microsoft can recognize 15% to 30% of this opportunity by FY26, with the assumption of a mid-to-late FY24 launch.”

The analyst said the growing total addressable market of 365 adds to conviction of Microsoft Cloud growth.

“The bar for FY24 Azure growth may be set at 23% to 25%, leaving room for upward revisions should the macro improve and Gen-AI related spending continues to grow.”

Rangan said investors may be overestimating the impact of capex spending for Microsoft and not looking to future growth and monetization opportunities.

“We remain focused on Microsoft’s long-term path that will see Gen-AI being a meaningful contributor to revenue across the many segments of the company’s portfolio. Similar to Azure, the added revenue from the near-term investments is likely to far exceed that of the near-term capex build-out.”

Wedbush analyst Daniel Ives had an Outperform rating on Microsoft and a price target of $375. The analyst sees ChatGPT and AI monetization as the next steps for growth for the technology giant. Ives believed monetization of AI could add $40 to $50 per share to Microsoft based on a sum-of-the-parts valuation.

Ives called for Microsoft to hit a market capitalization of $3 trillion by 2024. Channel checks and the earnings report from Nvidia Corporation gave the analyst confidence ahead of Tuesday’s earnings report.

The analyst saw the total addressable market for Microsoft growing with every $100 in cloud spending over the last few years with Microsoft now leading to an additional $35 to $40 in artificial intelligence spending in market opportunity.

Ives sees artificial intelligence as an $800 billion market over the next 10 years, with Microsoft a big winner.

In an earlier investment note and price target raise, Ives highlighted the cloud market and AI capabilities of Microsoft, noting a “golden goose opportunity” for the technology giant.

“ChatGPT will be the next leg of the growth stool for MSFT,” Ives said, noting a “’Game of Thrones’ battle for AI market share.”

Microsoft shares closed Monday at $345.11 versus a 52-week trading range of $213.43 to $366.78. 

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Produced in association with Benzinga

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