Microsoft Ramps Efforts To Build 'AI Supercomputer' With ChatGPT Ahead Of Q2 Earnings: Here's What To Watch When The Tech Giant Reports

Microsoft Corp (NASDAQ: MSFT) is set to report fiscal second-quarter financial results after the market closes Tuesday. Here's a look at what to expect from the tech giant, which tripled down on its investment in Open AI, the company behind ChatGPT, just a day ahead of earnings. 

What To Know: Microsoft is expected to report fiscal second-quarter earnings of $2.30 per share on quarterly revenue of $52.96 billion, according to average analyst estimates from Benzinga Pro.

In the company's fiscal first quarter, Microsoft reported earnings of $2.35 per share, topping analyst estimates of $2.32 per share. The company also turned in better-than-expected revenue results when it reported a top-line figure of $50.122 billion, which was up 11% on a year-over-year basis.

On Microsoft's conference call following the report, the Redmond, Washington-based company warned that it anticipated a 5% drop in Azure growth, so cloud computing will be an area to watch. Cloud services revenue was up 35% in the first quarter. 

Microsoft chairman and CEO Satya Nadella also noted the company planned to manage costs while investing in key growth areas. 

"In a world facing increasing headwinds, digital technology is the ultimate tailwind. In this environment, we’re focused on helping our customers do more with less, while investing in secular growth areas and managing our cost structure in a disciplined way," Nadella said.

One of those secular growth areas is AI. Microsoft confirmed a third investment in OpenAI's ChatGPT Monday morning. Microsoft previously invested in the company in 2019 and 2021. The new "multibillion dollar investment" aims to help accelerate AI breakthroughs. 

See Also: ChatGPT Is Just the Beginning – AI Is Quietly Reshaping Every Aspect of Your Life

"In this next phase of our partnership, developers and organizations across industries will have access to the best AI infrastructure, models, and toolchain with Azure to build and run their applications," Nadella said.

Microsoft said it's committed to building Azure into an "AI supercomputer for the world," serving as the foundation of the company's vision to "democratize AI as a platform."

Microsoft Analyst Take: BMO Capital cut its Microsoft price target from $270 to $267 ahead of Microsoft's quarterly results. The analyst firm is focused on Azure heading into the report. 

"We believe the bad news is now largely in for Windows, so key metrics that will likely shape our future stock views will be the Azure guide and the pace of Office growth," BMO wrote in a new note to clients.

BMO expects Microsoft to "meet expectations" in its impending report, but the firm warned that third-quarter guidance is likely to be below average analyst estimates. Buy-side expectations are likely much lower than sell-side estimates, BMO added.

BMO now expects 34% year-over-year growth in Azure in 2023, down from 36%. The firm also cut 2024 Azure growth estimates from 28% to 24%. 

"Our thesis is that Azure deceleration can moderate in FY24 as the current negative impact of consumption normalizes, though we remain concerned about the rate of deceleration both near term and longer term," BMO said.

From Last Week: ChatGPT Is Microsoft's Opportunity To Up The Ante Against Google: Analyst Says Nadella Not Going To 'Repeat' 90s Mistake

MSFT Price Action: Microsoft has a 52-week high of $315.95 and a 52-week low of $213.43.

The stock was up 1.63% at $244.14 at the time of writing, according to Benzinga Pro.

Photo: courtesy of Microsoft.