Microsoft Q1 Results and Future Outlook

Investing.com – Microsoft's first-quarter results and its current-quarter guidance have left many disappointed investors in "wait-and-see mode," according to analysts at RBC Capital Markets.

In October, Microsoft (NASDAQ:MSFT) announced that its capital expenditures would expand due to ongoing investments in building its artificial intelligence capabilities. The company has become a key player in the enthusiasm surrounding this emerging technology, largely due to the success of its Azure cloud business and its partnership with ChatGPT-maker OpenAI.

However, many observers have expressed doubts about the return on investment from the AI push, particularly concerning the tremendous spending on data centers, high-end graphics processing units, and other networking equipment.

Meanwhile, Azure's revenue grew by 33% in its first quarter, slightly exceeding analyst estimates of around 32%. Chief Financial Officer Amy Hood indicated that growth in this segment would slow to between 31% and 32% in the second quarter.

The RBC analysts predict that Azure's growth in the third quarter will surpass that of the second quarter and is expected to accelerate further in the last three months of Microsoft's financial year. They estimate that this will lead to second-half Azure growth of 34% to 35%, which they believe would indicate real acceleration compared to the first half and position Microsoft well for its 2026 fiscal year.

In its fiscal first quarter, Microsoft reported earnings per share of $3.3 on revenue of $40.59 billion. Analysts surveyed by Investing.com had forecast a per-share income of $5.21 on revenue of $40.18 billion.

In a note to clients, RBC analysts led by Rishi Jaluria noted that conversations with investors showed many are "on the sidelines or underweight" regarding Microsoft's shares until the firm releases its fiscal second-quarter results. Additionally, next week's annual developers conference is not expected to serve as a catalyst for the stock, according to the analysts.