Microsoft is in the middle of the artificial intelligence boom, but it’s been a while since investors have seen the rewards.
The software giant’s stock price is up less than 8% in the past year. That’s by far the weakest gain among the eight U.S. tech megacap companies. Apple has the next slimmest increase at 19%, followed by Alphabet at 26%. All the others are up at least 48%, and Tesla is the top performer in the group, up 117%.
Microsoft is also badly trailing the tech-heavy Nasdaq, which has gained 25% in the past year.
That’s the backdrop heading into Microsoft’s quarterly earnings report Wednesday. The company is kicking off tech earnings season, along with Meta and Tesla. Apple follows on Thursday, and Alphabet and Amazon report next week.
The biggest question for Microsoft shareholders surrounds the company’s Azure cloud-computing business and whether it will show accelerating growth.
In October, Microsoft told investors that demand for Azure services outstripped supply because of a delay from a third-party provider. Finance chief Amy Hood said she still foresees an increase in Azure’s growth rate in the first half of 2025, but for the December quarter, she called for 31% to 32% growth at constant currency, which would be down from 34% in the prior period. Microsoft’s stock slipped 6% the next day.
Since the last quarter of 2023, Azure growth has increased by 2 percentage points. Meanwhile, top rivals Amazon and Alphabet have seen cloud growth over that stretch accelerate by 7 points and 13 points, respectively. It’s a matter of particular importance to investors, because Microsoft now has tens of billions of dollars in quarterly capital expenditures to meet cloud and AI needs of customers.
A Microsoft spokesperson didn’t provide a comment.
Microsoft operates in many other markets. But investors gravitate to cloud first, because it’s a sizable category that’s still rapidly expanding as companies continue to move away from owning and operating their own data centers and as they add heftier workloads.
Overall, Microsoft is expected to report revenue growth of 11% from a year earlier to $68.8 billion, according to LSEG. That would mark the slowest year-over-year growth for any quarter since mid-2023. Analysts expect earnings per share to increase to $3.11 from $2.93 a year ago.
Investors were more bullish on Microsoft in 2023, sending the stock up more than 50%, its best year since 2009. The driving force was Microsoft’s intimate relationship with ChatGPT creator OpenAI, which sparked the generative AI boom and led to a historic increase in investments.
Microsoft is OpenAI’s leading backer, having poured nearly $14 billion into the AI startup. Through the partnership, Microsoft gets a lot of cloud business but also spends heavily on building out infrastructure.
The relationship changed in an important way last week, when Microsoft said OpenAI will no longer use Azure on an exclusive basis, except when it comes to handling incoming queries from developers. Going forward, OpenAI will have to check with Microsoft when it seeks more computing capacity, and Microsoft will be able to accept or turn away the request.
The announcement came at the same time as President Donald Trump’s introduction of Stargate, an AI infrastructure initiative involving SoftBank, OpenAI and Oracle.
In its own blog post, OpenAI named Microsoft as a technology partner but not a member of the group that will build and operate Stargate, which has the potential to draw up to $500 billion in investment. Microsoft has committed to $80 billion in AI-related capital expenditures in the year that ends June 30. Much of that is being directed toward Nvidia’s graphics processing units, or GPUs.
Analysts at Cowen wrote in a report that last week’s developments could help Microsoft reaccelerate the Azure growth rate into the mid-30s. They said Microsoft has been “funding GPU capex investments for OpenAI model training but not collecting revenue,” and that by pushing some of that training elsewhere, the company can “show improved capex efficiencies and stronger returns on capital spend” while keeping its access to OpenAI.
Kevin Walkush, a portfolio manager at Jensen Investment Management, said he expects the AI investment will pay off in the long run.
“If AI doesn’t show up, there’s still a long runway for cloud,” said Walkush, whose firm held about $913 million in Microsoft shares at the end of September. “But I think the chance of AI showing up is really high, so that’s the bet I’m willing to let them make to take advantage of this opportunity.”