Microsoft (MSFT) will report its second quarter earnings after the bell on Wednesday as Wall Street continues to digest the fallout surrounding DeepSeek’s impact on the AI industry and Silicon Valley’s tech titans.
Microsoft and its Big Tech cohort are investing tens of billions of dollars in the information centers and infrastructure needed to coach and deploy AI software across their various services. But China’s DeepSeek upended the overall pondering that developing AI models requires the usage of probably the most powerful, and expensive, chips with the discharge of its R1 model on Jan. 20.
The model, the corporate claims, was trained on systems that were less powerful and cheaper than those produced by American rivals like Microsoft-backed OpenAI, Google (GOOG, GOOGL), and Meta (META).
The corporate’s app shot to the highest of the App Store over the weekend, driving an enormous amount of interest within the relatively small firm and clobbering American AI stocks, including AI bellwether Nvidia.
Now Microsoft may have to prove not only that its own AI work is paying off by way of increased revenue but additionally that its hefty infrastructure investments are truly vital.
For the quarter, Microsoft is anticipated to report earnings per share (EPS) of $3.13 on revenue of $68.8 billion, in response to Bloomberg consensus data. The corporate reported EPS of $2.93 on revenue of $62 billion in the identical quarter last 12 months.
Importantly, Microsoft’s Industrial Cloud segment revenue, which incorporates cloud services sales, is anticipated to are available in at $41.1 billion. That may be a rise from the $31.9 billion the corporate reported in Q2 last 12 months. Its intelligent cloud business, which incorporates its Azure platform, is ready to are available in at $25.8 billion, up from $21.5 billion.
In a note to investors, Jefferies analyst Brent Thill said he believes Azure growth will begin to reaccelerate within the second half of 2025.
“Our checks proceed to point improving consumption/core cloud trends,” he wrote. “Also, [Microsoft] just announced that ‘OpenAI recently made a recent, large Azure commitment that may proceed to support all OpenAI products in addition to training.’ ”
While Microsoft is one among the most important beneficiaries of the AI boom, its stock price has lagged behind the competition. Shares of Microsoft were up just 5% over the past 12 months as of Monday, while Amazon (AMZN) and Google shares were up 44% and 26%, respectively.
Evercore ISI analyst Kirk Materne, nevertheless, says the stock might be arrange for a “mini revenge trade” as AI sales increase, its Copilot adoption rate improves, and capital expenditure moderates, creating more free money flow.