Microsoft is expected to report its weakest quarterly revenue growth in a year on Wednesday, as investors await signs of demand for AI amid growing concerns about slow returns on investment from massive investments in technology.

The software giant is widely considered the leader in the race to capitalize on generative AI, thanks in part to its investment in OpenAI, owner of ChatGPT. But recent reports point to slow adoption of its key products, including the $30-a-month Copilot assistant for businesses.

There is “a wall of concern” around Microsoft’s earnings, Morgan Stanley analysts said, pointing to “increasing capital spending, compressed margins, lack of evidence on returns from AI and the disorder after financial resegmentation”.

The results are the first since the company in August overhauled the way it reports its businesses to align them more closely with how they are managed. This decision, however, made it more difficult to estimate last quarter’s performance.

The company’s stock has risen about 1 percent since its last earnings release in late July, significantly underperforming the benchmark S&P 500. But the stock is up about 14 percent for the year. year.

Microsoft’s Azure cloud computing unit likely grew 33% during the company’s fiscal first quarter ended Sept. 30, according to seven analysts surveyed by Visible Alpha. That’s in line with the company’s expectations, but slightly lower than the fourth quarter.

While AI’s contribution to Azure has increased – and accounted for 11 percentage points of growth in the fourth quarter – overall activity has slowed. Microsoft said in July that it expected Azure’s growth to resume in the second half of the fiscal year.

Microsoft’s total revenue is expected to have increased 14.1 percent to $64.51 billion in the September quarter, according to analysts surveyed by LSEG.

Microsoft has warned – like its AI competitors – that spending on this technology will remain high.

Capital spending in the September quarter is estimated to have jumped 71.7 percent to $19.23 billion, according to Visible Alpha.

CO-PILOT SKEPTICISM

Copilot didn’t take off as Microsoft predicted.

A survey of 152 information technology companies showed that the vast majority had not advanced their Copilot initiatives beyond the pilot stage, research firm Gartner said in August.

Some analysts, however, believe that Microsoft’s recent initiatives, including the ability to create autonomous AI agents capable of performing routine tasks without human intervention, with the help of Copilot, could boost adoption of the assistant.

“Most investors seem skeptical about adopting 365 Copilot because they don’t use it personally much,” said Ben Reitzes, an analyst at Melius Research. “However, it appears that Copilot’s data points are improving slightly,” he said, adding that the assistant “boasts an increasingly improved customer list.”

Microsoft’s productivity and business processes unit – which houses Office, LinkedIn and 365 Copilot products – is expected to report steady 12% quarter-over-quarter growth, according to Bernstein’s Mark Moerdler, one of the the company’s top-rated analysts, according to LSEG.

Revenue from the intelligent cloud, which hosts Azure, likely grew 20%, the same rate as the previous quarter, Moerdler estimated. He added that growth in the more personal computing sector, which includes Windows and gaming, likely accelerated as the PC market stabilized.