Investors Await Microsoft's Financial Results as Key Indicators of AI Tool Adoption

The software industry in 2024 is abuzz with the question of how quickly customers are adopting new artificial intelligence tools. In this landscape, Microsoft's Copilot software, a valuable addition to its 365 suite of productivity tools, emerges as a focal point.

Investors eagerly anticipate Microsoft's financial results, set to be unveiled on Jan. 30, for insights into the uptake of this cutting-edge technology.

Morgan Stanley analyst Keith Weiss has expressed optimism regarding Microsoft's strong positioning in generative AI, which is poised to increase the company's share in overall IT spending progressively. Citing this advantage, Weiss has revised his revenue and earnings forecasts for the June 2025 fiscal year, surpassing Wall Street's consensus calls by 3%.

However, Weiss highlights a potential source of disappointment for investors: Microsoft may choose not to disclose concrete data on the adoption of Copilot software thus far.

Nevertheless, reaffirming his confidence in Microsoft, Weiss maintains an Overweight rating on the company's shares and raises his target stock price from $415 to $450. As of Tuesday, the stock showcased a slight dip at $396.16, while the S&P 500 experienced a modest 0.1% increase.

Microsoft Positioned for Strong Earnings Growth, According to Analyst

According to industry expert Weiss, Microsoft is poised for significant growth in earnings per share, with percentages in the high teens. Despite this potential, Weiss believes that the stock's current valuation does not accurately reflect this outlook. In an upcoming report on the December quarter results, the management is expected to provide qualitative commentary on the demand for artificial intelligence (AI) rather than specific figures.

Weiss is optimistic that the patience of investors will be rewarded, and highlights the positive reception of Copilot for Microsoft 365. This software, priced at $30 per user per month, has gained significant interest. A recent survey conducted by Morgan Stanley revealed that 38% of chief information officers expect to utilize this particular software within the next year. This marks a notable increase from the 22% reported just two quarters ago.

With an estimated addressable market of $10 billion, Weiss anticipates a $2.5 billion revenue contribution from Copilot by 2025. Furthermore, he identifies an additional $1 billion potential market for the recently announced consumer subscription version of the software.

In terms of Microsoft's Azure cloud service, Weiss predicts strong demand that will result in constant currency revenue growth between 27% and 28% for the quarter. This projection exceeds the Wall Street consensus by one or two percentage points.

Overall, Weiss's analysis suggests that Microsoft is well-positioned for robust earnings growth and highlights the potential opportunities in its AI software and cloud service divisions.

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