Microsoft Q2 earnings: AI investments and market expectations

When is Microsoft reporting?

​Microsoft Corporation is set to release its second quarter (Q2) earnings report on Thursday, January 30, 2025 at 8.05am AEDT.

Company backdrop

Microsoft faces heightened investor scrutiny over its massive artificial intelligence (AI) investments ahead of its earnings report, with the company's stock underperforming as markets grapple with slower-than-expected AI adoption and returns. Microsoft shares have been trading around 5 to 10% below their $468.35 July all-time high.

The earnings call will be crucial for Microsoft to address concerns about its substantial capital expenditures in AI and data centres, with investors seeking clear indicators of future profitability and a timeline for returns on these strategic investments.

Earnings report outlook

​The tech giant has committed tens of billions of US dollars to AI development, a bold bet that has yet to deliver the immediate returns investors had hoped for. The company's stock performance, struggling under the weight of these expenditures and slowing AI adoption, will likely be a focal point for the market.

​Despite reaching record highs in July 2024, Microsoft shares have underperformed compared to the Nasdaq 100 index since May 2024, trading more than 8% below their peak. This underperformance has raised questions about how quickly the company’s massive investments in AI and cloud infrastructure can generate meaningful returns.

​Microsoft versus Nasdaq 100 one-year performance chart

Q2 earnings expectations

Microsoft shares have been trading around 5 to 10% below their $468.35 July all-time high, reflecting partial optimism about AI initiatives. Microsoft faces heightened investor scrutiny over its massive AI investments ahead of its second quarter (Q2) earnings report, with the company's stock underperforming as markets grapple with slower-than-expected AI adoption and returns.

The earnings call will be crucial for Microsoft to address concerns about its substantial capital expenditures in AI and data centres, with investors seeking clear indicators of future profitability and a timeline for returns on these strategic investments. While Microsoft is aggressively pushing AI, it must prove the concept at a time when its capital expenditure plans are also at historic highs, leaving the stock fully valued by traditional standards.

Microsoft’s capital expenditure, revenue and EPS

Microsoft's capital expenditures this fiscal year include tens of billions of dollars dedicated to building data centres, which are critical for supporting AI and cloud computing capabilities. This spending, while strategically aligned with long-term goals, has heightened the need for clear indications of future profitability, especially as the cooling hype around AI risks leaving the stock vulnerable.

Investors will be watching closely for management's commentary on the anticipated trajectory of AI adoption and the timeline for materialising returns on these investments.

Revenue for the quarter is projected to reach approximately $68.82 billion, a year-over-year increase of 10.97%. Analysts expect an earnings per share (EPS) of $3.13 versus $3.30 in the first quarter (Q1) but a year-over-year (YoY) increase of 6.81%, reflecting the company's operational efficiencies despite its aggressive spending. This growth rate also shows continued momentum, though at a more measured pace than recent quarters.

​Microsoft’s revenue

Growth outlook remains robust despite impairment charge

The company will book an $800 million impairment charge related to its investment in General Motors' Cruise robotaxi unit. This one-time charge is expected to impact earnings by approximately nine cents per share. Despite this charge, Microsoft's broader financial health appears robust, with analysts maintaining a positive outlook on the company's growth trajectory.

Looking at the full fiscal year 2025, analysts project EPS of $12.92, marking a 9.5% increase from the $11.80 reported in fiscal 2024. This forecast suggests sustained growth despite possible macroeconomic challenges. The outlook appears even more promising for fiscal 2026, with analysts forecasting EPS to climb 14.2% to $14.76. This projection indicates accelerating growth momentum in the medium-term.

These forecasts reflect confidence in Microsoft's ability to maintain its growth trajectory across its diverse business segments.

The Intelligent Cloud segment, led by Azure, is likely to remain a key driver of growth, though analysts will look for signs of whether demand for AI-enhanced cloud services is meeting expectations. Microsoft’s Productivity and Business Processes division, buoyed by its Microsoft 365 suite, and its More Personal Computing segment, which includes Windows and Xbox, are also expected to contribute solidly to overall performance.

TipRanks Smart Score for Microsoft

According to LSEG Data & Analytics, analysts rate the Microsoft share as a ‘buy’, with 20 ‘strong buy’, 33 ‘buy’, and 4 ‘hold’ recommendations (as of 21 January 2025).

Microsoft also has a TipRanks Smart Score of ‘8 Outperform’ and is rated as a ‘strong buy’ by analysts, with 26 ‘buy’ and 2 ‘hold’ recommendations (as of 21 January 2025).

Microsoft technical analysis

The Microsoft share price has essentially been range trading above its August low of $358.58, but with an upward slant since then. In December, it attempted to reach its July record peak of $468.35 but fell short, coming off its peak on 12 December at $456.16. These highs will remain in focus while the October–January lows at $410.72–$405.57 provide a foundation on a daily chart closing basis.

Only a fall through the November low of $405.57 would put the next significant support zone at $389.17–$384.30 on the cards. This zone consists of the November 2023 high, and April and August 2024 lows. Longer-term, a rise above the July 2024 peak of $468.35 would likely put the psychological $500 mark on the map.

The Microsoft share price and technical indicators should be closely monitored for potential post-earnings movement.

​Microsoft daily chart

​Microsoft weekly chart