Microsoft (NASDAQ:MSFT) is expected to report a double-digit growth in revenue during its first quarter, with the tech giant mostly committing to pour aggressively on artificial intelligence yet again to keep up optimism among investors.
Wall Street expects the Redmond, Washington-based company to post EPS of $3.66 on revenue of $75.39 billion, implying a rise of 14.9% during the quarter.
Investors kept their blessings on Microsoft’s stock, even after the company guided a record $30 billion in capital spending for the July-September quarter. This clearly shows that the market is not flinching at this lavish spending as long as core revenue and profit keep booming.
The stock, which hit the $4T market capitalization level on Tuesday, gained over 26% so far this year, outperforming the near 17% rise in the broader S&P 500 Index.
Analysts are expecting a clean beat and believe that it’s unlikely the company will disappoint investors during its quarterly report. This will further strengthen the AI growth story for the upcoming year.
“We believe Microsoft is in the midst of hitting its next phase of monetization on the AI front and more enterprises are accelerating their AI budgets and strategic footprint with Redmond into FY26 with the Street still underestimating the growth trajectory moving forward,” said Wedbush analyst Dan Ives.
Guggenheim analyst John DiFucci wrote in a note that “in a time when investors struggle to separate AI beneficiaries from AI casualties, it’s clear to us that Microsoft, along with the other hyperscalers, is a beneficiary.”
Microsoft, on Tuesday, signed an agreement with OpenAI (OPENAI) that would value its stake at about $135B in the AI giant. The company reportedly is also pushing its Xbox division to reach profit margins of around 30%, well above the gaming industry’s typical 17%–22% range.
With the company already hinting at a higher spending during the quarter, the focus would be on maintaining the balance between AI growth and profitability.
Seeking Alpha analysts and Wall Street are bullish and rated the stock a Buy and above. Seeking Alpha’s Quant ratings are neutral and consider it a Hold.
Over the last three months, EPS estimates have seen 26 upward revisions, compared to four downward revisions, while revenue estimates have been revised upwards 31 times versus one downward move.