Microsoft's stock has been on fire. Will good earnings be enough to further the rally?
MarketWatch ·
By Emily Bary
Microsoft's hot stock performance means investors 'may need some patience,' even if Azure numbers impress, according to one analyst
Analysts say Microsoft Corp. has a high bar to clear this earnings season, with the stock a hair off its highs heading into Wednesday afternoon's report.
There's some reason for optimism, however. Alphabet Inc. (GOOG) (GOOGL) posted its own results last week, showing far better-than-expected results in the cloud and accelerating growth there.
Plus, the June-quarter report is Microsoft's "seasonally strongest," according to Jefferies analyst Brent Thill. He thinks Wall Street's expectations for Azure's latest performance "appear achievable," while expectations for guidance "look very achievable." Analysts tracked by FactSet expect 34.4% Azure revenue growth for the June quarter and 33.7% growth for the September quarter, both in constant currency. Microsoft's outlook was for 34% to 35% growth in constant currency.
"We expect a resilient [September-quarter] guide, as [Microsoft's] diversified portfolio & enterprise stickiness position it to weather any potential volatility," Thill wrote.
But the stock's recent action isn't to be overlooked. Microsoft shares (MSFT) are up 45% off their April lows and finished Monday at $512.50, about a dollar off their closing high achieved on Friday.
With that backdrop, "investors may need some patience as a better Azure outcome is largely baked in," according to Evercore ISI's Kirk Materne. But he sees opportunity for Microsoft's stock to "grind higher" as the year goes on, led by artificial-intelligence traction at Azure and "stabilization" in the non-AI parts of the cloud business.
Beyond the cloud, there are various aspects of Microsoft's outlook that will be of interest to Wall Street. Expect Microsoft to shell out big money on AI capital expenses once again in fiscal 2026, which just began, though the raucous growth in AI spending should "normalize," in his view.
See also: Why Google may have just kicked off a new wave of the AI spending rush
Whereas capital-expenditure growth was 53% in the March quarter, Materne sees the growth rate coming down to 21% for the June quarter and becoming "more in line with overall cloud growth" as investors look ahead.
Dan Morgan, a senior portfolio manager with Synovus Trust, wonders if investor sentiment toward Microsoft's stock is "overly optimistic" - or if Wall Street "may still be underestimating the potential for Microsoft's AI business to drive durable consumption growth for Azure and scale fast in the agentic AI era." He noted that when the company debuted its Copilot AI assistant, investors had too rosy a view of its initial financial potential, but Azure overall "has a visible path to accelerating bookings."
And speaking of Copilot, Morgan is also looking to see if that growth vector reemerges as a hot topic on this quarter's call given what have now become "low investor expectations" for this portion of the Microsoft 365 Commercial Cloud business. He'll be watching for Microsoft's security performance as well, noting that it has the potential to be another strong point for the company.
Overall, analysts tracked by FactSet expect Microsoft to post $3.38 in earnings per share for the June quarter on $73.81 billion in revenue. For the September quarter, analysts are looking for $3.56 and $74.15 billion, respectively.
-Emily Bary
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