Generative AI, copilots, agents, cybersecurity and PCs are among the many topics expected to come up.

An update on Microsoft’s suite of artificial intelligence offerings, including copilots and agents. Growth in Teams and the productivity application suite. And early signs of an AI PC revolution.

These are some of the subjects expected to come up when Microsoft reports earnings for the first fiscal quarter on Oct. 30. The Redmond, Wash.-based tech giant will cover the three months ended Sept. 30.

In a quarterly survey of Microsoft VARs, KeyBanc found that 100 percent of respondents said their Microsoft business met or beat expectations, up 14 points quarter over quarter, according to a report in October by the investment firm.

“This was paired with a 10-pt increase q/q in Microsoft’s strategic importance as a vendor with 74% of respondents seeing a net increase in Microsoft’s importance as a vendor,” according to the investment firm.

[RELATED: Microsoft To Grant Users More Access To Autonomous AI Agent Capabilities]

Microsoft Q1 2025

In an October report, Morgan Stanley said Microsoft can meet expectations for about 33 percent growth in Azure, building more confidence for a mid to high 30 percent second-half acceleration.

The upcoming quarterly earnings is Microsoft’s first since changing how it reports its revenue. An October report from Melius Research points out that Microsoft moved “the slower growing Enterprise Mobility + Security (EMS) and Power BI sales from the ‘Intelligent Cloud’ segment to ‘Productivity and Business Processes.”’

“The switch boosts the contribution of AI within Azure and its overall growth rate by about 3 percentage points vs. the prior methodology,” according to the report. “With the restatement, Azure should accelerate firmly into the mid-to-high thirties now in the back half of FY25 (C1H25) – with a double-digit percentage of the growth driven by AI (much faster growth than both Google and AWS).”

In a September report, Melius said that Microsoft should continue to stand out from the steep AI competition. “No one sees more data than the folks in Redmond,” according to the firm. “And their vast partner network should only augment their advantage.”

Here’s more of what to expect when Microsoft reports earnings on Wednesday.

Microsoft AI, Copilots, Agents

Microsoft Chairman and CEO Satya Nadella and company will likely seek to assuage any concerns about the vendor’s return on massive AI spending.

An October report by Morgan Stanley said that Microsoft capital spending has grown 75 percent year over year to $55.7 billion, adding $23.8 billion to spend with a healthy dose of that money going to the proliferation of generative AI. Morgan Stanley forecasts Microsoft’s 2025 fiscal year capital spending to grow 41 percent year over year to $78.4 billion.

A separate October report from the investment firm included a survey of CIOs showing that “Microsoft remains overwhelmingly best positioned to capitalize on gaining share of Generative AI spending over both the near-term,” with Microsoft receiving a 53 percent net score for one-year incremental GenAI spend.

Microsoft also looked good for incremental spend over the next three years with a 44 percent net score, according to Morgan Stanley. Amazon and Salesforce were the closest competitors in one-year incremental gains of GenAI spending. Amazon and Snowflake were the closest for the three-year window.

“Sequentially, Microsoft’s lead over Amazon widened by 5 points on a 1-yr view, while widening by 6 points on a 3-year view,” according to Morgan Stanley.

The investment firm found that 78 percent of surveyed CIOs believe “GenAI is directly impacting investment priorities in 2024 … and initial use cases for deploying Generative AI (are) cementing across key Software capabilities in employee productivity and specialized worker savings.”

Internal employee productivity and specialized worker savings were among “the top objectives around AI/ LLMs today,” according to Morgan Stanley. However, the investment firm saw signs of AI adoption taking longer for enterprises.

“Of the 97% of CIOs with plans to deploy Gen AI projects, 23% of CIOs already have projects in production (largely unchanged relative to 22% of CIOs in 2Q24), while 31% of CIOs expect to enter production in 2025, an uptick from 21% of CIOs in 2Q24,” according to the firm.

The percentage of CIOs expecting to deploy their first AI projects after 2025 “held largely stable QoQ (ticking up slightly to 29%).”

For CIOs seeing minimal or no effect on investment priorities by GenAI, the most commonly cited reasons in the survey were “lack of appropriate business use cases (47% of responses), prohibitive costs/lack of proven ROI (46% of responses), and data privacy/security concerns (46% of responses),” according to the firm.

An October report by KeyBanc showed that 6 percent of surveyed VARs said they have rolled Copilot into production for customers. Thirty-nine percent said customers are experimenting and piloting Copilot, down from 71 percent the prior quarter. Thirty-nine percent said they are researching and talking about adoption, up from 21 percent the prior quarter. And 17 percent said they are not seeing much activity, up from 7 percent the prior quarter.

KeyBanc’s survey showed that cost and security tied for the main inhibitor to Copilot adoption with a 32 percent share of responses, down from 50 percent last quarter for cost and 43 percent last quarter for security. Lack of use cases ranked second with a 21 percent share, down from 43 percent the prior quarter.

In a separate survey of small- and midsize-business IT spending, KeyBanc found that Microsoft was “a primary beneficiary of solid Gen AI interest” as well as “#1 in expense management, #2 in bill payment & invoicing, #4 in email marketing.”

Melius Research said in an October report that Microsoft’s Copilot Studio could end up “the standard interface that all of us have to drive through to use AI apps.” The firm’s vision for an AI future includes AI agents reducing “customer reliance on over-featured (and over-priced), packaged software.”

“In fact, the skillset of navigating the user interface for the SaaS programs you pay more for each year should diminish in value – and software will be based more and more on ‘prompted’ outcomes that a fourth grader can navigate,” according to the firm. “The only thing that we think we know is that dollars will accrue to the big clouds and chip companies that run these agents.”

Melius predicted that Microsoft will reveal “that AI has become a $10B run rate business on one of the next few conference calls,” with AI currently about 4 percent of run-rate sales.

Microsoft Teams, Productivity Apps, UCaaaS

Although more attention has been put on Microsoft’s AI and Copilot offerings of late, analysts may seek more details around Microsoft’s productivity application, Teams.

Morgan Stanley’s October report found that “Microsoft products continue to dominate the Project Management/Task Management landscape,” with a third-quarter survey of CIOs showing that 55 percent of respondents “reported using Microsoft Teams/ Microsoft Planner within their organization (up from 42% of CIOs in 3Q23), while 39% of CIOs indicate usage of Microsoft Project or another Microsoft solution (up from 27% in 3Q23).”

Microsoft’s closest competitor in the space appeared to be Atlassian and its Jira work management offering.

The enthusiasm around Microsoft project management tools might not necessarily translate into AI sales, however, with “the majority of CIOs (indicating) expectations to utilize free AI capabilities from their Project/Task Management vendor over the next 12 months (34% of CIOs).”

A quarter of respondents said they “expect to pay their Project/Task Management vendor for AI functionality over” that period, according to Morgan Stanley.

Morgan Stanley found that Microsoft was “the most likely choice” for vendor standardization, with “31% of CIOs (saying) their enterprise will standardize on one of MSFT’s solutions, an uptick from 21% of CIOs in 3Q23.” Atlassian received an 8 percent share from the survey.

About the same share of CIOs said they expect project and task management tool spending to grow in 2024 quarter to quarter at 38 percent. Morgan Stanley found that “59% of CIOs expect spend to remain unchanged, and 3% expect spend to decrease in 2024 (a notable downtick from 9% in 3Q23).”

In the Unified-Communications-as-a-Service space, “Microsoft Teams maintains dominant market share in current UCaaS deployments … and planned migrations,” according to Morgan Stanley.

“In a reversal from recent surveys, results also suggest Microsoft Teams seeing increased traction with Voice at expense of UC specialists … limiting the ability for UC specialists to offset a smaller core UCaaS opportunity with Voice,” even if their wares are at a lower average revenue per user, according to the investment firm.

The firm found “desire to move away from Zoom to consolidate with Teams is still increasing … with Zoom’s position in Voice also screening incrementally weaker as well from 1Q24.”

CrowdStrike Effect, Microsoft Security Products

On Wednesday’s call, analysts may ask Microsoft leadership to share how its security offerings are performing and whether the vendor has seen any movement following the faulty CrowdStrike update that downed millions of Windows machines.

KeyBanc’s October report included results from a quarterly VAR survey asking which vendors customers considered when migrating off CrowdStrike. SentinelOne placed first with a 52 percent share of responses followed by Microsoft with 48 percent. Palo Alto Networks received 37 percent.

The investment firm’s report showed Microsoft performing well in a variety of security areas, with survey respondents ultimately holding a steady opinion of Microsoft’s competitive position in security quarter over quarter.

Microsoft ranked No. 1 “as the best positioned consolidator of security spend,” ahead of Palo Alto Networks and CrowdStrike.

Survey respondents ranked Microsoft’s endpoint and email security suites as the most successful security areas for the vendor, each getting a 70 percent share of responses. The worst performing areas were the secure access service edge (SASE) suite with a 4 percent share and data security suite with 15 percent.

The vendor ranked second for top-performing endpoint security vendors in the quarter with 48 percent share, behind CrowdStrike (52 percent) and ahead of Palo Alto Networks (39 percent).

Microsoft saw meaningful improvement quarter over quarter among vendors ranked for SASE and zero trust network access (ZTNA), getting 35 percent share and ranking No. 3 behind Zscaler (57 percent) and Palo Alto Network (43 percent). Microsoft beat Netskope, Cisco and Fortinet. The three vendors tied with 26 percent each.

Cisco and Microsoft tied as the No. 2 security vendor that outperformed expectations the most in the quarter with a 30 percent share, ahead of SentinelOne at 22 percent and Palo Alto Networks at 19 percent. Fortinet was No. 1 with 33 percent of responses.

Wiz and Microsoft tied for best-positioned cloud security vendor with 24 percent share. Palo Alto Networks came in second with 20 percent. CrowdStrike saw a meaningful decline quarter over quarter to 12 percent share.

Microsoft tied with Arctic Wolf for No. 2 among vendors offering security analytics, security information and event management (SIEM) and extended detection and response (XDR). They each had a 41 percent share of survey responses. Cisco ranked first with 45 percent. It bested Palo Alto Networks’ 36 percent share.

In identity and access management, KeyBanc’s October report included a survey that showed Microsoft “continues to lead as (the) most likely consolidator of IAM spend, although its lead has narrowed the past several quarters.” Microsoft received a 33 percent share of survey respondents compared with Okta’s 22 percent and CyberArk’s 19 percent.

In a survey of small- and midsize-business IT spending for the second half of 2024, KeyBanc found that Microsoft followed by Google remain the most used SMB security vendors, with Microsoft’s share falling from 51 percent at the start of the year to 40 percent. About 60 percent of surveyed SMBs said they pay for security products, up from 54 percent in the first half of the year.

Microsoft Cloud, Azure, Software

Morgan Stanley’s October report said that “as workloads shift to the cloud, Microsoft and Amazon remain the clear beneficiaries.”

“Conversely, Dell, VMWare, Oracle, IBM and HPE have the highest risk of losing incremental share of IT budgets both in 2024, and over the next three years,” according to Morgan Stanley.

Morgan Stanley found that “Azure remains the fastest growing hyperscaler according to CIOs on a relative basis,” according to the report.

An overall trend going in favor of Microsoft and other vendors is an indication of modest acceleration in software spending comparing 2025 budgets to 2024 ones. Software budgets in 2024 grew 3.5 percent year over year. In 2025, the growth is expected to be 3.75 percent year over year.

“Software remains the fastest growing IT industry in our survey in 2025, while Software related spend continues to dominate key strategic priorities for CIOs, with Artificial Intelligence/Machine Learning, Security Software, Digital Transformation, Cloud Computing, and DW/BI/ Analytics comprising the top 5 (unchanged relative to 2Q24), and demonstrating the durability of secular trends,” according to Morgan Stanley.

An October report by KeyBanc reported that Microsoft VARs’ long-term “expectations for workloads to be deployed in the cloud up-ticked for the first time in three quarters, albeit remain below the historical average,” which “could indicate less favorable conditions for Azure.”

However, cloud spending expectations in the next 12 months increased quarter over quarter, according to KeyBanc. The firm surveyed the Microsoft offerings most likely to receive increased spending, with Azure ranking first with 74 percent share, AI coming in second with 53 percent and Office 365 and Teams tying for third with security 32 percent. The worst performers in this survey include Dynamics and data warehouse.

In a separate survey on SMB IT spending, KeyBanc found Microsoft was the second most strategic data analytics vendor at 49 percent share of responses, coming in behind Google at 57 percent and ahead of IBM’s 22 percent.

Microsoft ranked first among vendors SMBs plan to consolidate onto, nabbing a 52 percent share followed by Adobe with 45 percent and Salesforce with 33 percent. About 60 percent of respondents said they plan to consolidate their front-office software on to fewer vendors.

About a third of respondents said they use a public cloud vendor, with Google taking the top spot. Azure’s share grew 4 points and AWS’ share fell 8 points from the prior half.

Melius Research’s October report on Microsoft said that the firm believes “Azure revenue will reaccelerate in C1H25 with help from Nvidia’s Blackwell” graphics processing units (GPUs).

PCs, Windows

Analysts on the call might look to more evidence of an AI PC revolution bringing the cutting- edge technology to the device level—with the planned October 2025 end of support for Windows 10 a potential factor in new PC purchasing decisions.

Morgan Stanley’s CIOs survey showed that “hardware spending expectations are flat to slightly lower into 2025, though underlying end-market data is more bullish, and Gen AI is increasingly an incremental tailwind to budget plans.”

“Overall, Hardware budgets are expected to grow 1.7% Y/Y in 2024, down 10bps from our 2Q24 Survey, with the first look at 2025 budgets showing another 10bps deceleration (to +1.6% Y/Y), the only technology subsegment to see budget growth slow in 2025,” according to the firm.

Still, breaking hardware down into more specific segments showed more positive results, with storage “expected to see the strongest growth in 2025 at +4.2% Y/Y (+74bps vs. 2024), followed by PCs at +3.0% Y/Y (+14bps vs. 2024) and servers at +2.9% Y/Y (+76bps vs. 2024).”

The firm found that “84% of hardware domain experts cite they are either evaluating or plan to evaluate the use of PCs optimized for Generative AI, up from 75% in our 1Q24 CIO survey.”

The firm found that “42% of Hardware experts cite productivity/efficiency gains as a reason to purchase an AI PC while 35% of Hardware experts cite Microsoft CoPilot.” CIOs said they prefer x86 chip architecture over Arm, but architecture did not play a major factor in AI PC purchasing decisions.

Morgan Stanley found that “27% of CIOs that expect accelerating PC growth in 2025 say it is to refresh aged devices, 18% say it is to meet growth in the business and 11% say it is to complete Windows 11 refresh.”

The results are “different from 1Q24 when business growth and supporting work from home were the top reasons for accelerating PC growth in 2024.”

For CIOs expecting decelerated PC growth in 2025, the most common reasons are fewer employees, cost reduction and an uncertain macroeconomy, according to the firm.