Microsoft Q3 preview: Wall Street, amid tariff fears, is looking for proof AI is paying off

Microsoft (MSFT) volition study affirmative 3rd 4th net aft the doorbell connected Thursday. As successful anterior quarters, Wall Street volition beryllium looking for impervious that the company's immense AI information halfway investments are paying off. But President Trump's "Liberation Day" tariffs could adhd an other wrinkle arsenic endeavor customers propulsion backmost connected spending amid broader economical uncertainty.

"We estimation that 10%-15% (could beryllium conservative) of galore unreality and AI initiatives successful the US we are tracking successful the tract could beryllium pushed/slowed down during this play of uncertainty and Microsoft volition beryllium beforehand and halfway successful this economical play of uncertainty," Wedbush expert Dan Ives wrote successful an capitalist enactment earlier this month, soon aft Trump announced helium would intermission reciprocal tariffs for 90 days.

Microsoft is besides cutting backmost connected immoderate of its AI buildout, with Noelle Walsh, president of Microsoft Cloud Operations and Innovation, penning successful a LinkedIn station that the institution is "slowing oregon pausing immoderate early-stage projects."

In February, TD Cowen expert Michael Elias wrote successful an capitalist enactment that Microsoft was canceling an unspecified fig of its information halfway leases. At the aforesaid time, the tech elephantine has said it's contending with AI capableness constraints that are preventing it from providing arsenic galore AI services arsenic its customers need.

Microsoft banal is down 7% twelvemonth to date, disconnected 3% implicit the past 12 months.

For the 3rd quarter, Microsoft is expected to study net per stock (EPS) of $3.21 connected gross of $68.4 billion, according to Bloomberg statement estimates. The institution produced EPS of $2.94 connected gross of $61.8 cardinal successful the aforesaid 4th past year.

Microsoft's commercialized unreality gross is expected to apical retired astatine $42.2 billion, up from $35.1 cardinal successful Q3 2024.

Broadly speaking, analysts are expecting maturation to dilatory crossed Microsoft's assorted concern segments. Productivity and Business Processes are expected to scope $29.6 billion, a leap of 9.8% compared to the 11% summation the institution saw past year. Intelligent Cloud and Azure gross are anticipated to turn astatine 18.2% and 30.9%, respectively, compared to 21% and 35% successful Q3 2024.

Still, analysts expect the percent of Azure gross attributable to AI to summation by 15.6%, the largest quarter-over-quarter leap since Q2 2024, erstwhile it climbed from 5% to 9%.

Microsoft's More Personal Computing segment, which includes income of Windows licenses to third-party machine makers and its gaming and hunt divisions, is expected to station gross of $12.6 billion, up little than 1% twelvemonth implicit year.