Every Microsoft stock investor should watch this key number on October 30th

Corporate America is poised for another important earnings season. Wall Street will be particularly focused on the results of the tech giants that dominate the artificial intelligence (AI) race, as they tend to deliver much stronger revenue and profit growth than the rest of the stock market.

Microsoft (MSFT -0.63%) plans to report results for the first quarter of fiscal 2025 (ended September 30) on October 30, and investors will be eager to see how well the company monetizes its growing portfolio of AI products and services.

However, there will be one AI number in Microsoft’s report that may be more important than the others.

Microsoft’s numerous AI projects are being scrutinized

Early last year, Microsoft shook up the tech sector by announcing plans to invest an additional $10 billion in ChatGPT developer OpenAI. Since then, the company has used OpenAI’s industry-leading models to develop several AI products, including its Copilot virtual assistants, which are capable of generating text, images and even computer code in response to simple prompts.

Copilot is now integrated for free into most of Microsoft’s flagship software programs, including the Windows operating system, the Edge Internet browser, and the Bing search engine. However, the company requires an additional monthly subscription to add Copilot to its Microsoft 365 suite of productivity applications, which includes Word, PowerPoint and Excel.

Globally, companies are paying for more than 400 million 365 seats and all are potential candidates for Copilot add-ons, representing a significant financial opportunity for Microsoft. In the fourth quarter of fiscal 2024 (ended June 30), Microsoft said the number of enterprise customers who purchased more than 10,000 Copilot add-ons for 365 doubled compared to just three months earlier. Investors should keep an eye out for updates to Copilot numbers in the coming quarter.

But the Azure cloud computing platform is likely to be at the top of the report, thanks largely to Azure AI. This is the offer that allows companies and developers to rent computing capacity for data centers with the latest chips from Nvidia And Advanced micro devicesto build your own AI models. Azure AI also provides access to the latest Large Language Models (LLMs), including OpenAI’s GPT-4o, which enable developers to accelerate the creation of AI software applications such as chatbots and virtual assistants. At the end of the fourth quarter, Azure AI had 60,000 customers, an impressive 60% increase year over year.

The big number that Microsoft investors need to keep an eye on

The Azure cloud platform has historically been the fastest-growing part of the entire Microsoft organization, which is why investors tend to focus on it the most. In the fourth quarter, Azure revenue increased 29% year-over-year, an acceleration from 26% in the year-ago quarter.

Azure’s growth is increasingly driven by Azure AI. For example, Azure AI accounted for 8 percentage points of overall Azure growth of 29% in the fourth quarter, which was a record high. That represented a whopping eightfold increase from the same quarter last year, when Azure AI contributed just one percentage point to the company’s revenue growth rate.

Microsoft spent a whopping $55.7 billion on capital expenditures in fiscal 2024, most of which went to AI data center infrastructure and chips. Management has already announced that it plans to spend even more in the 2025 fiscal year.

Revenue generated by Azure AI is one way to measure the payoffs Microsoft (and its investors) receive for these significant financial expenditures. Assume that Azure AI continues to contribute an increasing share of Azure’s growth. This suggests that companies and developers are spending money on computing capacity and access to the latest LLMs.

Microsoft trades at a premium valuation

Based on Microsoft’s trailing 12-month earnings per share of $11.80, the stock trades at a price-to-earnings ratio of 35.5. That’s a 10.5% premium over the ratio of 32.1 Nasdaq-100 Index that includes all of Microsoft’s Big Tech competitors.

The sheer amount of money Microsoft is spending on AI infrastructure will have a negative impact on earnings for at least the next year. Therefore, if Azure AI continues to make a growing contribution to the Azure cloud platform’s results, investors are likely to continue to support the stock’s premium valuation. However, if Azure AI stalls or underperforms, it could trigger a correction in Microsoft stock.

This is why I believe Azure AI contributes to Azure’s overall revenue growth The This is a number investors should keep an eye on as of October 30th.