Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Wall Street is bracing for an important week for corporate earnings, with tech behemoth Microsoft (NASDAQ: $MSFT) set to report its Q3 results after the market closes on Tuesday. Three areas that might be of particular concern to analysts include the cloud segment, generative AI developments, and the Productivity and Business Processes segment. Overall, the Windows maker is expected to report earnings of $2.65 on revenue of $54.5 billion.

Azure and Other Cloud Services

Perhaps the company’s cloud segment is the most important category analysts and investors will thoroughly examine in Microsoft’s Q3 report on Tuesday.

In particular, growth in Azure’s cloud computing business and its performance against Wall Street expectations will attract the bulk of market watchers’ attention. Over the past few quarters, Azure has witnessed a slowdown as some customers explored ways to improve the efficiency of their cloud outlays.

In its own guidance, Microsoft expected the Azure segment to grow 25% to 26% in the September quarter, compared to the 26% recorded in the June quarter. The tech giant expects Azure to receive a 1-2% growth boost from its AI-related efforts, up from the 1.5% seen in the previous three-month period.

Derrick Wood, analyst at TD Cowen, said he expects Azure to grow “down the middle” of Microsoft’s guidance range, adding that any deviation in either direction could cause a stock price change.

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Generative AI

Meanwhile, Guggenheim strategist John DiFucci said it is unlikely that the Q3 report would provide meaningful insights into its generative AI ventures. However, this category is expected to impact the MSFT stock in the mid-term.

“We don’t expect this quarter’s results to provide a strong indication of Microsoft’s development in GenAI in either direction, which is the narrative that we believe will drive the stock’s progression over the medium term.” – DiFucci said in his note.

Instead, the September quarter could bring potential upside for Office and Windows, adding that consensus estimates for the operating system “reflects guidance that assumes much worse PC shipments than was ever likely,” said DiFucci. The analyst anticipated some risk for the Azure business.

Productivity and Business Processes Segment

According to consensus estimates, analysts on Wall Street expect Microsoft to generate $54.5 billion in revenue in Q3, which would mark a year-over-year increase of 8.8%. For earnings per share (EPS), analysts call for $2.65, up from $2.35 reported in Q3 2022.

One segment that may be of investors’ and analysts’ interest is the Productivity and Business Processes segment, which includes Office products, LinkedIn, and Dynamics 365. Analysts’ revenue growth estimates for this section include a 10.5% YoY growth to $18.2 billion.

What are your overall expectations for Microsoft’s Q3? Let us know in the comments below.