Microsoft $MSFT's second-quarter earnings are due after market close on Wednesday, and analysts think the tech giant will show sustained revenue growth on the back of the AI frenzy.
Wall Street expects Microsoft to report quarterly earnings of $3.35 per share, a year-over-year increase of 13.6%, according Zacks Investment Research. The 16 analysts surveyed by the firm anticipate that Microsoft's revenues will total $73.71 billion, an increase of 13.9% compared to the year-ago quarter and in line with the company’s own forecast.
Analysts want more evidence that Microsoft can translate its steep spending on AI-enabled data centers into robust revenue growth. The tech giant has pledged to invest $80 billion across fiscal year 2025 to build centers "to train AI models and deploy AI and cloud-based applications" around the world. "The firm is making a big bet with capex, so any green shoots here are helpful,” Morningstar's Dan Romanoff wrote on Tuesday.
Investors will be closely watching whether Microsoft has allocated too much capital towards scaling capacity. In February TD Cowen analysts, citing the brokerage's supply chain checks, wrote in a note that Microsoft had scrapped leases for sizable data center capacity. The company reportedly walked away from agreements with at least two private data centre operators, totaling two gigawatts of power, due to an oversupply relative to its near-term demand forecast. Attempting to dispel talk that it was dialing down its data center expansion, during its latest earnings call, CEO Satya Nadella said: “We continue to expand our data centre capacity. This quarter alone, we opened data centres in 10 countries across four continents.”
Investors are expecting the "green shoots" to be sprouting from Microsoft's cloud computing infrastructure business, known as its Azure and Intelligent Cloud segment, which provides capacity for running AI applications. Last quarter, Microsoft reported 35% year-on-year revenue growth for this segment, with AI services contributing 16% of that growth. This topped analyst estimates for 31% growth. Microsoft has predicted Azure growth of 34-35% for the quarter ending June.
"In our view, the investor bogey is for constant currency Azure growth of 36% for Q4 and guidance for a modest deceleration to 34% growth in Q1," UBS analyst Karl Keirstead said in a client note Tuesday.
Microsoft Copilot, the firm's family of AI assistants that integrate with its products and services, are another area of potential growth that investors will be watching closely. During the quarter ending April 2025, Copilot adoption surged, with usage reportedly tripling year-over-year, and Microsoft 365 Commercial cloud revenue rose 12% year-over-year, buoyed by Copilot.
Microsoft has cut over 15,000 people in 2025, over two rounds of layoffs. The first was skewed toward gaming and the second was for reducing management layers, the company said. Investors rewarded Microsoft for eliminating jobs, pushing its stock’s closing price above $500 for the first time on July 9.
“Any additional color or specific financial impact [of the layoffs] will be interesting. Margins should be fine, but with all the recent capex, depreciation will start ramping, and we wonder whether the layoffs were in anticipation of this,” noted Morningstar’s Romanoff.
In a Thursday post about the layoffs, CEO Nadella wrote: “Progress isn’t linear. It’s dynamic, sometimes dissonant, and always demanding. But it’s also a new opportunity for us to shape, lead through, and have greater impact than ever before.”
The cuts reflect a broader trend across the tech industry, with over 80,000 positions eliminated to date in 2025, according to one estimate.
While Microsoft has culled approximately 7% of its workforce this year, it's been investing more into recruiting engineers, as Big Tech battles for top AI talent. Microsoft's AI unit has reportedly poached around two dozen staff from Google $GOOGL DeepMind, Alphabet’s artificial intelligence research unit, CNBC reported earlier this week.