---
title: "How big is the demand for AI? Is AI making money? Focus on Microsoft's Q3 earnings report."
type: "News"
locale: "zh-HK"
url: "https://longbridge.com/zh-HK/news/100693990.md"
description: "Due to Copilot's listing on November 1st, analysts generally expect that AI will not give Microsoft's performance much of a boost this quarter."
datetime: "2023-10-24T13:47:48.000Z"
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  - [zh-HK](https://longbridge.com/zh-HK/news/100693990.md)
---

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# How big is the demand for AI? Is AI making money? Focus on Microsoft's Q3 earnings report.

Microsoft will kick off the earnings season for US tech giants tonight. After a lackluster performance in the previous quarter, the market is looking to this AI leader, which has been leading the AI trend for most of this year, to indicate the future direction of AI.

Currently, Wall Street generally expects Microsoft's first-quarter revenue to reach $54.5 billion, a year-on-year increase of 10%, with earnings per share expected to be $2.65, a year-on-year increase of 13%.

Among them, revenue from the Intelligent Cloud business, including Azure, is expected to grow by 15.6% to reach $23.5 billion; revenue from the Productivity and Business Processes division (including Office and other applications) is expected to grow by 10.5% to $18.2 billion; and revenue from the Personal Computing division is expected to decline by 3.6% to $12.9 billion.

However, compared to the performance growth of the above businesses, investors are more eager to see the demand in the AI field give Microsoft enough performance boost.

As Wedbush analyst Daniel Ives wrote in a report to clients, Microsoft's performance will be a "key indicator of cloud spending, especially the interest of CFOs in spending on generative AI."

## Doubts about AI investment

Earlier this year, Microsoft attracted investors' attention with its investment in OpenAI, but as Microsoft advances the application of AI in its products, market sentiment has changed.

In a report to clients on October 18, Wolfe analyst Alex Zukin said:

> Although we were busy revising our estimates for Copilot last quarter, investors seem to have fallen into a trough of disillusionment with AI, questioning its actual functionality, profitability, and ultimate sustainability and competitive advantage.

In the previous quarter, investors' expectations were disappointed, with AI's contribution to Microsoft's revenue almost non-existent, and both PC and cloud business growth remained weak, below market expectations.

Since the earnings report was released in late July, Microsoft's stock price has fallen by 7%.

## Copilot has not yet been launched

However, some analysts believe that Microsoft's earnings report and stock price will not change much this quarter, as the AI-powered Copilot suite will not be officially launched until November.

In a report, Guggenheim analyst John DiFucci wrote:

> We do not expect this quarter's performance to strongly indicate Microsoft's development in the generative AI field, but we believe this narrative will drive the stock's rise in the medium term. Despite the skepticism about how many companies would be willing to pay an additional $30 for Copilot, Goldman Sachs is confident. Analyst Kash Rangan wrote in a report to clients:

> We continue to capture signals of increasing demand (with tens of thousands of enterprise users participating in Microsoft 365 Copilot early access program).
> 
> Microsoft's speed to market, strong influence in the technology stack, and good footprint within enterprises lead us to believe that Microsoft has the ability to drive growth with the support of these announcements and become a key leader in the era of generative AI.

## Current Focus on Cloud Computing

For investors, the benefits of AI for Microsoft may be more evident in the improvement of its cloud computing business rather than future products like Copilot.

Microsoft's previous guidance suggested that Azure would grow by 25% to 26% in the September quarter, compared to a growth rate of 26% in the June quarter.

Microsoft stated that AI-related work is expected to boost Azure by two percentage points in the September quarter, higher than the one percentage point in the June quarter.

In a preview report on October 19, Evercore ISI analyst Kirk Materne wrote:

> We expect Microsoft's (1Q) results to be solid, which helps demonstrate that the Azure business is stabilizing to some extent. Given the increasing demand for AI services, including OpenAI's enterprise API, we believe a 26% YoY growth for Azure seems realistic.

Wolfe's Zukin also noted that "AI services could bring some upward potential" to Microsoft Azure's performance.

A recent survey by Morgan Stanley showed that while chief investment officers seem excited about the potential of AI, most do not necessarily expect to launch major AI projects until 2023.

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