Microsoft Q1 earnings might be mixed due to new metrics: Piper Sandler

Microsoft’s (NASDAQ:MSFT) upcoming earnings report could be mixed due to new metrics published in August that are not yet fully reflected in analysts estimates, including a material change to Azure, according to Piper Sandler.

Microsoft updated its fiscal year 2025 investor metrics in August, which included several significant segment changes.

“By our estimate, Azure IaaS revenue is now 20%-plus lower with a 34% growth profile that could moderate to 33-34% this quarter,” said Piper Sandler analysts, led by Brent Bracelin, in an investor note. “Even after tempering Copilot assumptions, we remain bullish on Microsoft AI given triple-digit growth prospects at OpenAI and now see Microsoft AI revenue eclipsing $10B in F2025E (90%+ from Azure).”

Despite maintaining an Overweight rating on Microsoft, Piper Sandler lowered its price target ahead of the upcoming earnings report to $470 from $485.

“Further analysis of Street estimates suggests Q1 results and guidance could be sloppier than normal given the magnitude of KPI model changes that have yet to be fully reflected across consensus,” Bracelin noted.

Piper Sandler also ever-so-slightly lowered Microsoft’s earnings per share for fiscal year 2025 to $13.22 from $13.24 and fiscal year 2026 to $15.19 from $15.37.

Morgan Stanley said last month that the reporting changes made by Microsoft should provide a “cleaner” look at its all-important Azure segment.

Microsoft shares have demonstrated little upward action over the past six months, rising by a mere 3.4%. This is well below the S&P 500, which has gained 16.8% over the same time frame. The technology sector as a whole has increased 17.5% in the last six months.

Microsoft is scheduled to release its first quarter fiscal year 2025 financial report post-market on October 30. A consensus of analysts expects the company to report earnings per share of $3.10 on revenue of $64.53B.