Microsoft (MSFT) Earnings Preview: AI, Azure, and Outlook

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Microsoft Corporation (MSFT) is poised to release its fourth-quarter fiscal year 2025 financial results on July 30, 2025.

What to Expect?

Microsoft has consistently beaten earnings expectations for the past eight quarters, showing strong performance and market leadership.

However, this success has set high expectations for future growth, which is already factored into its current stock price. With a forward P/E ratio of 35.3x, the stock’s valuation leaves little room for any disappointing results.

However, this success has set high expectations for future growth, which is already factored into its current stock price. With a forward P/E ratio of 35.3x, the stock’s valuation leaves little room for any disappointing results.

The market's response to Microsoft's Q4 FY25 report will depend not just on the numbers but also on how management explains future growth, especially plans to make money from AI. If there are signs of slower growth or rising costs without a clear explanation of the benefits, the stock could become volatile, even if the overall performance is strong.

Analysts expect another strong quarter for Microsoft. The consensus estimate for Q4 FY25 earnings is $3.35 per share, up 13.6% from $2.95 last year. Some forecasts are slightly higher at $3.38 per share, a 14.47% increase.

The estimate hasn’t changed in the last 30 days. Revenue is expected to hit $73.71 billion, up 13.9% from last year, with other estimates ranging from $73.805 billion (14.03% growth) to $73.89 billion (11% growth with constant currency).

Source: Created by Zain Vawda, Google Gemini

The market's response to Microsoft's Q4 FY25 report will depend not just on the numbers but also on how management explains future growth, especially plans to make money from AI. If there are signs of slower growth or rising costs without a clear explanation of the benefits, the stock could become volatile, even if the overall performance is strong.

Key Areas to Focus On - Growth Drivers and Challenges

Among the key areas I will be paying attention to tomorrow is Microsoft's Azure Performance, AI and Co-Pilot monetization, Personal Computing segment and Financial Health and Shareholder returns.

The intelligence cloud segment led by Azure is key to growth. Revenues are expected between $28.75–$29.05 billion, with Azure projected to grow 34–35%. AI services are a key contributor, adding up to 16 percentage points to Azure’s growth. Despite GPU shortages, high demand for AI highlights Microsoft’s leadership in the cloud market. Importantly, Azure’s growth is also supported by non-AI services like cloud migrations and infrastructure hosting, ensuring a stable foundation.

AI remains central to Microsoft’s strategy, with significant investments in tools like Copilot. Current deployments have boosted revenue per user by 6%, and broader adoption is expected in FY26. Microsoft plans to spend $80 billion on AI infrastructure in FY25, prioritizing long-term growth over short-term profits.

The More Personal Computing segment, covering Windows, Xbox, and advertising, is expected to contribute $12.35–$12.85 billion. While Windows OEM revenues are declining, Xbox and advertising are showing growth. AI integration in consumer products offers future potential.

Microsoft’s heavy AI investments may pressure margins in FY26, but its operational efficiency and strong shareholder returns provide confidence. Analysts remain optimistic, with price targets as high as $600, reflecting faith in Microsoft’s ability to turn AI investments into long-term growth.

Source: Created by Zain Vawda, Google Gemini

External Concerns

New tariffs in 2025, targeting high-tech products like laptops and servers, are raising costs for U.S. businesses, including Microsoft. These tariffs, ranging from 15% to 50%, increase hardware costs by 2–4.5%, squeezing profit margins and potentially raising prices for consumers.

For Microsoft, higher tariffs on Surface laptops and Xbox consoles could lead to price hikes, making them less competitive against alternatives like Apple or Lenovo. Additionally, increased costs for servers and networking gear may pressure Azure’s operating margins, even as demand for cloud services grows. Delayed hardware upgrades could also slow adoption of Microsoft’s latest AI-integrated software, impacting long-term revenue growth.

To manage these challenges, Microsoft is focusing on supply chain optimization and operational efficiency. For example, it has reduced GPU delivery times by 20%, helping to offset some cost pressures. While Microsoft hasn’t explicitly mentioned tariffs as a major issue, its proactive strategies suggest confidence in managing these impacts without significant margin erosion. Interestingly, higher hardware costs may push businesses toward cloud solutions, indirectly benefiting Azure despite the challenges.

Source: Created by Zain Vawda, Google Gemini

Forward Outlook

Microsoft is focusing on expanding its partner network to drive growth, unifying platforms like Azure Marketplace and AppSource into a single system. Sellers are now incentivized to co-sell with partners, with Azure and Copilot funding increasing by 70% and 50% respectively. This partner-led approach aims to scale AI adoption and transform customer operations.

AI is a major revenue driver, with Copilot alone projected to generate $25 billion by FY26. Analysts note that for every $100 spent on Azure, an additional $50 is now spent on AI, highlighting the growing demand. The broader AI market is expected to grow from $5.1 billion in 2024 to $47.1 billion by 2030.

While OpenAI costs may impact FY26 earnings, Microsoft is expected to see a 20% EPS boost in FY27 as these costs normalize. Analysts view FY26 as the turning point for AI monetization, setting the stage for long-term, high-margin growth.

Source: Created by Zain Vawda, Google Gemini

Technical Analysis

From a technical standpoint, Microsoft shares have been grinding higher since early May.

Looking at the RSI period 14 and Microsoft has been trading in and around overbought territory since the start of May as well.

Given what we have read about Microsoft's impressive earnings run and performance post earnings releases, further upside remains in play.

However, should the earnings release disappoint, Microsoft could drop significantly. The fact that the share price trades at such a lofty valuation means there is little wiggle room for disappointment.

Microsoft Daily Chart, July 29, 2025

Source: TradingView

Follow Zain on Twitter/X for Additional Market News and Insights @zvawda

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