Microsoft earnings will show what 'inning' AI is in: Analyst

Microsoft (MSFT) is set to report its fourth quarter earnings after the market close on Tuesday. Ali Mogharabi, WestEnd Capital Management's senior equity analyst, joins Morning Brief to discuss his expectations for the results and how he anticipates AI will impact them.

Mogharabi notes that AI is still in "the early stages," and he expects continued investment in the technology from Microsoft. He references other tech companies like Alphabet (GOOG, GOOGL), which saw 29% growth in their cloud businesses, describing this as "good for Microsoft." He suggests this trend indicates that "the cloud providers, including Microsoft of course, will probably see demand for their cloud go up thanks to AI," adding that he's "pretty optimistic" about Microsoft's cloud and AI businesses in the upcoming report.

"I'm sure you remember last week, Sundar Pichai, CEO of Alphabet, he actually said there may be overinvestments on that front [AI], but that's actually much better than underinvesting and falling behind,'" Mogharabi tells Yahoo Finance. "Microsoft probably has the same type of strategy moving forward," he adds.

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This post was written by Angel Smith

Transcripción del vídeo

Let's get back to Microsoft.

Will the tech giant be able to deliver on those lofty A I expectations and what should investors be looking for to help answer those questions we're bringing in Ali Moga Rabi, who is the senior equity analyst over at West End capital management here and great to have you this morning.

Let's just dive in on Microsoft.

Of course, this a company that's gonna be continued to be annexed to this broader generative A I trade, considering some of their own investments.

What are you anticipating as the company is gonna have to answer questions about the level of those investments and whether or not they're at the peak of those or if the peak of those investments in that cap X is behind it.

Yeah, that's, that's a good question.

Um You know, we, we still think that overall within the A I cycle, we're in probably still the early stages.

So uh you know, Capex for, for those guys for Microsoft and the other hyper scale is probably still going to continue and create to, to grow a little bit again, demonstrating the continuing investment in A I. Um you know, this is their Q four.

It's very important for A for a tech uh Q four, you know, when their sales teams are, are driven uh the most to make their numbers.

So, you know, if you're talking about A I on the cloud side, uh you know, Google reported as, you know, 29% year your growth.

And that was a good sign for Microsoft.

And remember for that was driven by A I uh for reach the training and inference requires a, you know, very high computational capability.

So, uh you know, the cloud providers including Microsoft, of course, will probably see demand for their cloud.

Um you know, go up thanks to A I and uh so, so we're pretty optimistic uh on the, on the cloud slash A I front for, for Microsoft and then going back to CX, you know, their guidance is very important as we said, uh it will give us a better idea about basically, you know, in what inning we're at when it comes to the A I cycle.

Um And just to give you an example, I'm sure you remember last week, you know, uh Sinar Paka, uh CEO of alphabet, he actually said there may be over investments on that front, but that's actually much better than under investing and, and falling behind.

So, uh Microsoft probably has the same type of strategy going forward.

Ali uh you mentioned that these reports are going to give us a better idea as to what uh inning we're in here when it comes to A I just from your assessment so far, the research that you've done, where do you think we are?

Uh we'd probably say probably in the 4th, 5th inning.

So still, you know, a little bit early.

Um you know, we're most of the investments that we've seen are on the infrastructure side, right?

Uh expanding uh those data centers, building new data centers, uh investing in the chips, of course, you know, the NVIDIA and and so forth.

Um And then the next phase and this is mainly to to prepare um to have the infrastructure for the training side of the A I.

And the next phase is going to be in the inference side, which is actually developing those really, those great tools to either help various firms monetize their products more effectively and or of course, become operate more efficiently, become more productive and so forth.

So that that side of it uh I think is still to come.

So again, I I think we're still probably in the 4th 5th inning.

So what I guess my follow up there is what does that tell us just about whether or not there seems to be this debate playing out right now on Wall Street, whether or not the uh the earnings growth narrative has gotten ahead of itself, whether or not we're starting to see a shift in that narrative, this earnings season.

What's your read on that?

Um I, I don't necessarily think it's gotten ahead of itself yet.

Um You know, again, Google's numbers were actually pretty good.

So, uh whether it was on the search side or whether it was on the cloud side, which again is indicative of, of continuing investments by their clients in, in A I.

So I don't necessarily think we have yet gotten ahead of ourselves here.

And of course, you know, the results from Microsoft from Meta this week and also from, from Apple and Amazon.

Uh hopefully we'll support that.