Microsoft CEO Satya Nadella. (GeekWire Photo / Todd Bishop)

Microsoft will report its fiscal first quarter earnings Tuesday afternoon. Analysts are keeping a close eye on the company’s cloud division, particularly as the COVID-19 pandemic and related stay-at-home orders increase demand for its products and services. Wall Street expects revenue of $35.7 billion, up 8% year-over-year, and earnings per share of $1.54, up 12%.

Dan Ives, an analyst with Wedbush, said Azure growth will likely be in the 50% range, citing strong deal activity as more companies accelerate their digital transformation and cloud strategy.

“We believe Azure’s cloud momentum is still in its early days of playing out within the company’s massive installed base and the Office 365 transition for both consumer/enterprise is providing growth tailwinds over the next few years,” Ives wrote in a research note last week.

Revenue growth in Azure was 47% for the June quarter, a smaller percentage increase than in recent quarters.

The stakes are high for Microsoft with Azure, as highlighted in an Economist story this month. “Microsoft cannot afford to get Azure wrong,” the story noted. “It is what drives its share price.”

Microsoft still trails Amazon Web Services in cloud infrastructure market share but is gaining ground. AWS had a 45% share at the end of 2019, down from 47.9% in 2018, while Microsoft grew its share from 15.6% to 17.9%, according to Gartner. The overall market grew 37.3% in 2019 to $44.5 billion.

Microsoft’s stock is up more than 50% since March, ending Monday at $210.08 per share. The company’s market capitalization is $1.6 trillion; Microsoft is now the second-most valuable U.S. publicly-traded company behind Apple, which will report earnings Thursday. Amazon, Facebook, and Alphabet also report quarterly financials this week.

Other tailwinds driven by the pandemic that should help drive Microsoft’s revenue are rising PC shipments, which are hitting decade-highs this year, and increased gaming activity.

It was a busy quarter for Microsoft. The company debuted the new Surface Duo device; rolled out several new features for its Teams collaboration app; lost out on a bid to buy TikTok; and announced the acquisition of ZeniMax, the parent company of Bethesda Softworks, which develops The Elder ScrollsFalloutWolfensteinDOOM and other top video game franchises. Microsoft is set to debut its new Xbox console next month.

The Redmond, Wash.-based tech giant earlier this month revealed a new “hybrid workplace” policy that laid out how employees can have a more flexible remote work schedule and even relocate elsewhere in the country.

Microsoft posted revenue of $38 billion, up 13%, beating Wall Street’s expectations for its fiscal fourth quarter ended June 30. While the pandemic helped boost the company’s productivity, cloud, and gaming businesses, traditional Office software licensing continued to suffer. LinkedIn and search advertising were also impacted negatively due to the slowdown in jobs and the economy.

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