TLDR
- Microsoft reports fiscal Q3 2026 earnings after market close Wednesday
- Analysts expect EPS of $4.05 on revenue of $81.4 billion
- Azure cloud revenue growth of 39.7% is the key metric to watch
- Capex expected at $37.5 billion, nearly double last year’s $21.4 billion
- MSFT stock is down ~10-12% this year, the worst performer among the Magnificent 7
Microsoft reports fiscal third-quarter earnings after the bell on Wednesday, and the stakes are high. The stock is down roughly 10-12% in 2026, making it the biggest laggard in the Magnificent 7.
Analysts surveyed by FactSet expect adjusted earnings of $4.05 per share on revenue of $81.4 billion. That compares to $3.46 per share on $70.1 billion in the same quarter last year.
Wall Street has been patient with big tech’s AI spending. That patience is starting to wear thin.
Microsoft has committed $120 billion in capex this year to build out AI infrastructure. For Q3 alone, analysts expect $37.5 billion in capital expenditure â up sharply from $21.4 billion in Q3 last year.
Free cash flow tells a similar story. It’s expected to come in at $15.4 billion, down from $20.3 billion in the year-ago period. Investors want to know when the spending starts paying off.
Azure Growth Is the Number to Watch
Azure cloud revenue growth is the metric that will move the stock. Wall Street expects growth of 39.7%, a slight tick up from 39% in the prior quarter.
Any miss on that number could be painful. Investors have been watching cloud growth closely as the clearest signal of AI demand.
Deutsche Bank analyst Brad Zelnick flagged in an April 20 note that capacity constraints could put pressure on cloud growth. Demand is outpacing supply, with servers and data centers still being built out. Zelnick rates MSFT a Buy with a $575 price target, but thinks capex growth could slow through fiscal 2027.
Copilot Monetization in Focus
Beyond cloud, investors want to see progress on Copilot. Microsoft reported 15 million paid Microsoft 365 Copilot seats last quarter, with paid M365 Commercial seats topping 450 million.
Seat growth is a key way Microsoft can show it’s turning AI investment into actual revenue.
There’s a broader concern weighing on the stock too. Some investors worry that advances in AI could disrupt enterprise software â Microsoft’s bread and butter. The company needs to show it’s benefiting from the AI wave, not being undercut by it.
One positive signal: consulting giant Accenture plans to roll out Microsoft’s Copilot to all 743,000 of its employees, a concrete sign of enterprise adoption.
Investors will also be paying close attention to management commentary after Microsoft and OpenAI confirmed Monday that their exclusive partnership has ended.
Microsoft carries a consensus Strong Buy rating from 35 Wall Street analysts â 33 Buy and 2 Hold. The average price target of $570.30 implies around 34% upside from current levels.
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