After a $357B wipeout, tech giant gets another chance – GeekWire

The last time Microsoft reported earnings, it appeared to do all the things proper, at the least by the standard metrics. Revenue was up 17%, earnings soared 24%, and the corporate’s carefully watched Azure cloud enterprise beat inside forecasts.

And then it obtained completely punished.

Microsoft’s inventory dropped 10% the next daywiping out $357 billion in market worth. Investors seemed previous the standard numbers, specializing in the corporate’s file $37.5 billion in quarterly capital spending, an AI income backlog closely depending on OpenAI, and a Copilot product that had reached simply 3.3% of Microsoft 365’s industrial base.

The inventory nonetheless hasn’t recovered, ending final week down 22% from its 52-week excessive.

On Wednesday, Microsoft gets another chance, reporting its fiscal Q3 outcomes after the market closes. Here’s a preview of the important thing numbers and storylines to observe.

Core earnings estimates: Analysts count on Microsoft to report income of about $81.4 billion, up 16% from a yr in the past, and earnings of $4.06 per share, up 17%, according to Yahoo Finance. Microsoft has overwhelmed Wall Street’s estimates 4 quarters in a row.

Cloud expectations: Microsoft has stated it expects Azure to develop 37% to 38% in fixed forex (adjusted for fluctuations in alternate charges) in Q3. That can be a slight slowdown from the 38% it posted in Q2. Last time, Azure beat Microsoft’s personal forecast however fell wanting what analysts have been privately anticipating, a main issue within the historic inventory plunge.

But the Azure quantity does not inform the total story. CFO Amy Hood stated on the last earnings call that if Microsoft had allotted all of the GPUs it introduced on-line in Q1 and Q2 solely to Azure (ie, the corporate’s cloud clients), the expansion charge would have been over 40%.

Instead, the corporate break up that capability throughout Azure and its personal merchandise and operations, together with Copilot, GitHub Copilot, and inside R&D. That means Azure progress is as a lot a reflection of how Microsoft chooses to allocate its assets as it’s a measure of demand.

To learn Microsoft: Even in simply the previous few months, Microsoft has moved to chop prices and streamline its operations even because it continues to spend aggressively on AI infrastructure — trying to exhibit to Wall Street that it is staying disciplined on working bills.

• The firm offered voluntary retirement to 1000’s of staff for the primary time in its 51-year historical past, focusing on employees whose age plus years of service complete 70 or extra. Hood is anticipated to debate the monetary particulars of this system on the earnings name.
• Item flattened its management layers and overhauled its compensation construction, decreasing the variety of pay factors from 9 to 5 and decoupling inventory awards from bonuses.
• Cloud and gross sales groups have been put underneath spending and hiring freezes.
• Several senior execs introduced their retirement, together with Experiences and Devices chief Rajesh JhaDeveloper Division chief Julia Liusonand Xbox chief Phil Spencer.

Capital spending: Microsoft is on tempo to spend greater than $100 billion on infrastructure in fiscal 2026, up from $88.7 billion the yr earlier than, mirroring spending emerges throughout Big Tech. About two-thirds goes to GPUs and different {hardware} for AI and cloud workloads.

Hood stated capex spending would come down from the Q2 determine of $37.5 billion within the final quarter, however it can nonetheless be far above the corporate’s historic ranges. Investors can be looking ahead to any sign about whether or not the tempo of spending is about to proceed, stage off, or speed up.

Copilot and AI monetization: Microsoft disclosed in January that its Copilot product had reached 15 million paid seats, roughly 3.3% of the Microsoft 365 industrial base of about 450 million, which has since been cited repeatedly for instance of the corporate falling quick.

At $30 per consumer per 30 days, Copilot represents a giant income alternative if adoption accelerates, and any new disclosures about total utilization will make large headlines. If the corporate does not disclose this quantity within the new report, it might be telling, as nicely.

Microsoft’s contracted future income greater than doubled to $625 billion final quarter, however about 45% of that was tied to OpenAI, because of the corporate’s renegotiated partnership with the ChatGPT maker, elevating questions on danger of a lot income related to at least one firm.

William Blair analyst Jason Ader famous after final quarter that Microsoft’s contracted future income nonetheless grew 28% after stripping out OpenAI, and that new contract signings emerged 228%.

Microsoft CEO Satya Nadella additionally launched a new metric final quarter: “tokens per watt per dollar,” a measure of how a lot AI output the corporate gets for every unit of power and capital it invests. He did not give an overarching quantity, however for instance, Nadella stated Microsoft was capable of course of 50% extra OpenAI workload on the identical quantity of infrastructure as earlier than.

The larger image: Not everyone seems to be pessimistic. Wedbush analyst Dan Ives, in two notes to purchasers final week, argued that the market is underestimating cloud progress and that fears about OpenAI and Anthropic displacing the large cloud suppliers are overblown.

Ives pointed to greater than $650 billion in mixed AI infrastructure spending from Microsoft, Google, Amazon, and Meta in 2026, and estimated $3 trillion in enterprise and authorities AI spending over the subsequent three years. I’ve referred to as the latest sell-off a shopping for alternative.

ServiceNow, a main enterprise software program firm, noticed its inventory drop 17% on its own quarterly results last weeka signal that enterprise know-how spending could also be softer than anticipated.

But Intel emerged more than 20% After sturdy earnings, pushed by a 22% leap in knowledge middle and AI income, a signal that demand for the computing infrastructure behind AI is broad-based.

Earnings avalanche: Amazon, Google, and Meta all report the identical afternoon as Microsoft, which suggests traders can be evaluating Azure, AWS, and Google Cloud progress in actual time.

Check again Wednesday afternoon for protection.