Does Azure AI Growth Make Microsoft Stock a Buy Ahead of Q4 Earnings?

Microsoft’s MSFT fourth-quarter fiscal 2025 results, scheduled to be reported on July 30, are likely to be driven by steady growth in its cloud platform, Azure. (Read Now: Should Investors Buy Microsoft Stock Ahead of Q4 Earnings Release?)Microsoft positioned itself for another strong quarterly performance as the company continued to capitalize on the AI revolution throughout the fourth quarter of fiscal 2025 despite facing competitive pressure in the AI space from tech giants, including Alphabet's GOOGL Google, Nvidia NVDA and Amazon AMZN.The technology giant's strategic investments in AI infrastructure and expanding partner ecosystem are expected to have created multiple tailwinds that are likely to boost results across key business segments, particularly in the high-growth Intelligent Cloud division.The Intelligent Cloud segment is expected to have remained Microsoft's primary growth engine, with revenue projections between $28.75 billion and $29.05 billion for the fourth quarter. Our model estimate for this segment is pegged at $28.89 billion, indicating growth of approximately 21% from the year-ago quarter.Microsoft Corporation Price and EPS Surprise Microsoft Corporation price-eps-surprise | Microsoft Corporation QuoteAzure AI Services to Drive Outstanding PerformanceAzure is expected to have continued as the standout performer, with revenue growth projected between 34% and 35% in constant currency, driven predominantly by sustained momentum in AI services adoption.Microsoft's AI capacity constraints, which management expects to have extended beyond June, represent a high-quality problem reflecting extraordinary demand for Azure AI services. The company brought datacenter capacity online faster than expected in the third quarter, with AI contributing 16 points of Azure growth compared to 13 points in the prior quarter. This acceleration trajectory positioned Microsoft advantageously entering the fourth quarter, as the company continued expanding its global infrastructure footprint to meet surging enterprise AI adoption.Management's previous quarter commentary highlighted that Azure's outperformance came primarily from non-AI services, demonstrating the platform's broad-based strength beyond AI workloads. This diversified growth foundation is expected to have provided additional confidence for fourth-quarter performance, as both traditional cloud migrations and cutting-edge AI implementations contributed to revenue expansion.Microsoft Build 2025 Catalyzes Enterprise AI Adoption in Q4Microsoft Build 2025 in May unveiled transformative capabilities that are likely to have accelerated customer commitments during the quarter, including Microsoft 365 Copilot Tuning for enterprise-specific model training, multi-agent orchestration systems, and Azure AI Foundry Agent Service becoming generally available. These announcements represented significant competitive advantages that strengthened Microsoft's AI platform leadership.The introduction of agentic AI capabilities, including the Agent Store, Microsoft 365 Agents SDK, and enhanced Copilot Studio features, expanded the total addressable market for Microsoft's AI services. Enterprise customers gained access to sophisticated tools for building custom agents, which translated into higher-value contracts and deeper platform integration throughout the fourth quarter.Copilot Momentum Accelerates Productivity Growth in Q4Microsoft 365 Copilot is expected to have continued gaining traction in the to-be-reported quarter. Management guided for M365 commercial cloud revenue growth of approximately 14% in constant currency for the fourth quarter, with continued ARPU growth through E5 and M365 Copilot driving performance.The fourth quarter benefited from extended Microsoft 365 Copilot promotions offering 15% discounts through June 30, while new capabilities like Copilot Notebooks, enhanced search functionality, and reasoning agents provided compelling upgrade paths for existing customers. These developments strengthened Microsoft's competitive moat in productivity software while expanding revenue per user.Strong Commercial Fundamentals Support GrowthMicrosoft entered the fourth quarter with commercial remaining performance obligation of $315 billion, up 34% year over year, providing substantial revenue visibility. The company's annuity mix reached 98%, demonstrating exceptional business model quality and predictable cash flows. This contracted backlog represented unprecedented customer commitment levels, reducing execution risk for fourth-quarter results.Management guided for solid commercial bookings growth in the fourth quarter despite significant prior-year comparisons, supported by strong core annuity sales execution and continued long-term platform commitments. The combination of existing backlog conversion and new contract signings created multiple revenue drivers for the quarter.Investment Thesis StrengthenedMicrosoft's guided fourth-quarter capital expenditures increase on a sequential basis, reflecting management's confidence in sustained demand signals. Rather than constraining growth, capacity limitations validated the company's strategic AI investments and market-leading position. The guided revenue range of $73.15-$74.25 billion, with the midpoint significantly exceeding consensus estimates, demonstrates management's strong confidence in underlying execution capabilities.Microsoft's fourth-quarter fiscal 2025 results are likely to exceed expectations across key metrics, driven by Azure AI acceleration, expanding Copilot adoption, and strong enterprise commitment levels. These fundamental strengths, combined with the company's rapidly expanding AI ecosystem and deepening customer relationships, make the stock increasingly compelling for investors seeking sustained exposure to artificial intelligence transformation. MSFT currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.5 Stocks Set to DoubleEach was handpicked by a Zacks expert as the favorite stock to gain +100% or more in the months ahead. 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