Microsoft cuts jobs, boosts AI spend

Microsoft shares entered the trading week with a year-to-date gain of nearly 10%, a figure that lags behind the S&P 500 index, which is up approximately 13% over the same period. The company prepares to release its fiscal first-quarter results after the market close on Wednesday.

Wall Street expects the software firm to report adjusted earnings of $4.73 per share on total revenue of $90.69 billion, according to data from LSEG. A major shift in financial reporting coincides with this release. Microsoft is returning to a two-segment operating structure for the first time since 1998. This framework replaces the three-segment model used over the past 11 years to categorize Azure, Office, and Windows businesses.

Investors will scrutinize the new disclosure of Azure cloud revenue in dollar terms. Analysts polled by StreetAccount project this figure at $32.32 billion, implying a growth rate exceeding 44%. The company faces high capital expenditure expectations, with StreetAccount surveys projecting $50.67 billion in capital expenditures and finance leases for the quarter.

These financial moves accompany internal restructuring. During the fiscal first quarter, Microsoft announced the reduction of 4,800 positions. On Monday, the firm added that it is offering buyouts to up to 60,000 employees. Management aims to balance a costly artificial intelligence build-out with improved capital efficiency.

The company has expanded its AI infrastructure and product offerings, including a new AI implementation unit and a Copilot application with coding capabilities. This strategy contrasts with rivals such as Alphabet and Amazon, which reported negative free cash flow in the June quarter. Meta also indicated a shift to negative free cash flow in the third quarter last week. Microsoft executives will provide guidance during a conference call beginning at 5:30 p.m. ET.