Microsoft Faces Slowing Growth as Azure Cloud Business Eyes Recovery

NEW YORK — Microsoft is expected to report slowing sales and earnings growth for its December quarter, with analysts forecasting a rebound in its Azure cloud computing business by March. The tech giant is set to release its fiscal second-quarter results late Wednesday, with Wall Street anticipating earnings of $3.11 per share on sales of $68.9 billion.

If the projections hold, Microsoft’s earnings would grow 6.1% year-over-year, marking its slowest growth in eight quarters. Sales are expected to rise 11.1%, the lowest in six quarters. Analysts attribute the slowdown to a dip in Azure’s revenue growth, which is projected at 30.2% for the December quarter, down from 31.1% in the previous quarter.

However, optimism remains for the March quarter, with Azure revenue forecast to grow 31.7%, or 33.4% on a constant currency basis. Analysts believe increased data center capacity will bolster the cloud business. For the March quarter, Wall Street predicts earnings of $3.16 per share, up 7.5%, on sales of $69.8 billion, a 12.8% increase.

Microsoft’s stock has shown resilience, trading near its all-time high of $468.35, reached on July 5. On Tuesday, shares closed at $444.06, down 0.6%. Analysts remain bullish on the company’s long-term prospects, particularly its investments in artificial intelligence (AI).

BofA Securities analyst Brad Sills highlighted Microsoft’s AI-driven growth potential in a client note. “We expect Q2 results to drive better sentiment on the shares, given a likely Q3 Azure outlook for accelerating growth,” Sills said. He maintains a buy rating with a price target of $510.

Jefferies analyst Brent Thill echoed this sentiment, reiterating his “top pick” rating and a $550 price target. Thill emphasized Microsoft’s leadership in generative AI, citing its partnership with OpenAI and investments in Copilot AI applications. “While we are in the early innings of AI adoption, we continue to be bullish on Microsoft’s Copilots’ ability to drive revenue uplift in calendar 2025 and beyond,” he said.

Despite the optimism, some analysts remain cautious. Guggenheim‘s John DiFucci maintained a neutral rating, citing slow adoption of Copilot services. TD Cowen‘s Derrick Wood also noted challenges, stating that Microsoft’s revised pricing strategy for Office Copilot signals slower-than-expected adoption. Wood rates the stock as buy with a $475 price target.

As Microsoft navigates these challenges, investors will closely watch its AI initiatives and cloud business performance for signs of sustained growth.