TLDR
- Microsoft reports fiscal Q2 2026 earnings on January 28, with analysts expecting $3.91 per share and $80.3 billion in revenue
- Azure cloud revenue growth projected at 38.4%, down slightly from previous quarter’s 40%, though some analysts predict better results
- Capital spending hit $34.9 billion in Q1 and is expected to rise faster in fiscal 2026 than the prior year
- Rising memory costs could limit guidance upside as demand for AI-powering components outpaces supply
- Stock trades at 28.5x forward earnings, below its five-year average of 31.5x, with analysts maintaining Buy ratings despite recent price target cuts
Microsoft reports its fiscal second-quarter earnings after market close on Wednesday. Wall Street expects earnings of $3.91 per share on revenue of $80.3 billion.
That compares to earnings of $3.23 per share on revenue of $69.6 billion in the same quarter last year. The company has beaten earnings estimates in nine straight quarters.
The stock closed Tuesday at $480.58, up 7.5% over the past 12 months. It’s up about 7% in 2025 but remains down nearly 14% from its all-time high reached in late October.
Investors will focus on several key areas. Azure cloud growth tops the list. So does AI infrastructure spending. And the health of the core software business matters too.
Azure Growth Takes Center Stage
Analysts expect Azure revenue growth of 38.4%. That’s a slight decrease from the 40% growth reported in the previous quarter.
Stifel analyst Brad Reback thinks Microsoft will do better. He expects Azure to post growth about 200 basis points above consensus.
Reback pointed to a solid economy and rapid OpenAI usage growth. Management has said demand continues to outpace Azure supply. He rates Microsoft as a Buy with a $520 price target.
Azure has become a top platform for building AI applications. Users can access multiple generative AI models through the service.
Microsoft owns a large stake in OpenAI, which created ChatGPT. But Azure also provides access to X’s Grok, Meta’s Llama, and Anthropic’s Claude.
New AI data centers in Atlanta and Wisconsin should support continued growth. UBS analyst Karl Kierstead noted this expansion while maintaining a Buy rating.
Capital Spending and AI Infrastructure
Microsoft spent $34.9 billion on capital expenditures in the first fiscal quarter. That exceeded expectations.
CFO Amy Hood said in October that capex will rise faster in fiscal 2026 than in fiscal 2025. Whether management sticks with that projection will signal how they view AI demand.
Like other Big Tech companies, Microsoft has been pouring money into AI infrastructure. Options traders expect a 5.41% move in either direction following the earnings announcement.
Rising memory costs present a challenge. Memory prices have surged because demand outpaces supply as the need for AI-powering components increases.
Raymond James analyst Andrew Marok said rising memory costs will likely cap guidance upside. He rates Microsoft at Outperform with a $600 price target.
“That is likely to cap upside to guidance and provide a ceiling to investors’ enthusiasm around the Azure growth number given that expectations are that it is limited until capacity blockers are removed,” Marok wrote.
Software Business and Valuation
Microsoft’s roots are in software. The M365 suite hosts the company’s own software products.
Some on Wall Street worry AI capabilities will make traditional software obsolete. Software stocks have taken a hit on these concerns.
Marok believes these worries are overdone for Microsoft. He described M365 as an enterprise mission-critical application. Many companies would need serious internal overhauls to switch away from it.
Microsoft’s Copilot product within Office has gained traction. But Azure remains the centerpiece of the AI strategy.
Several analysts recently lowered price targets on Microsoft. UBS cut its target to $600 from $650. Cantor Fitzgerald, Wells Fargo, and Mizuho Securities also reduced their targets.
All maintained Buy-equivalent ratings. The cuts reflect broader software sector valuation pressures rather than weakening fundamentals.
The stock now trades at 28.5 times forward earnings. That’s below its five-year average of 31.5 times. Prior to October, Microsoft traded above 32 times forward earnings.
Wall Street maintains a Strong Buy consensus with 32 Buy recommendations and two Hold ratings. The average price target of $626.14 suggests 34% upside from current levels.
Microsoft unveiled its Maia 200 accelerator on Monday. It’s the second generation of the company’s in-house processors.
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