TLDR
- Microsoft announces Q2 fiscal 2026 earnings January 28 with Wall Street forecasting $3.91 per share earnings and $80.28 billion revenue
- The company beat earnings estimates nine consecutive quarters while Azure cloud revenue surged 40% in Q1 on AI demand
- Stock down 14% from peak but up 7% year-to-date, now trading at 28.5 times forward earnings versus five-year average of 31.5 times
- Multiple analysts trimmed price targets to around $600 while maintaining Buy ratings due to software sector valuation compression
- Options market anticipates 5.41% price movement following earnings as Azure growth and AI monetization remain key focal points
Microsoft unveils fiscal 2026 second quarter earnings after market close on January 28. Wall Street analysts anticipate earnings of $3.91 per share.
Revenue projections stand at $80.28 billion for the quarter. The earnings estimate reflects 21% growth compared to the prior year period.
The revenue forecast shows a 15% year-over-year increase. Microsoft has surpassed earnings expectations in the last nine quarters.
Shares gained 7% in 2025 despite trading 14% below all-time highs. The decline began following the company’s October earnings release.
AI Applications Fuel Azure Expansion
Azure cloud platform recorded 40% revenue growth in the first quarter. The service has become a leading choice for enterprises deploying AI solutions.
Microsoft provides access to multiple generative AI models through Azure. Companies can use OpenAI’s ChatGPT alongside X’s Grok, Meta’s Llama, and Anthropic’s Claude.
This diversified approach gives Azure an edge over competing platforms. Developers appreciate the flexibility to select optimal AI tools for specific applications.
Infrastructure expansion continues with new data centers in Atlanta and Wisconsin. These facilities support growing demand for cloud and AI services.
The Copilot feature integrated into Office applications shows adoption growth. However, Azure performance remains the primary metric investors monitor for AI success.
Price Targets Adjust on Sector Trends
Microsoft currently trades at 28.5 times forward earnings. This valuation sits below the stock’s five-year historical average of 31.5 times.
UBS analyst Karl Kierstead maintained a Buy rating but reduced his price target to $600 from $650. He cited strong Azure fundamentals while acknowledging sector-wide valuation pressures.
Cantor Fitzgerald, Wells Fargo, and Mizuho Securities also lowered targets. Each firm kept Buy-equivalent ratings on the stock.
The price target reductions stem from broader software industry valuation concerns. Analysts stressed these changes don’t reflect weakness in Microsoft’s business performance.
Wall Street consensus shows 32 Buy ratings and two Hold recommendations. The average analyst price target reaches $626.14, suggesting 34.38% upside from current levels.
Options traders price in a 5.41% move following the earnings announcement. This expectation reflects the importance of cloud metrics and AI progress.
In late October, Microsoft traded above 32 times forward earnings. The subsequent decline brought valuation closer to industry norms.
Most large technology companies trade around 30 times forward earnings. Microsoft’s current multiple offers an attractive entry point relative to recent history.
The company manages multiple revenue streams beyond cloud computing. Business units include Office productivity tools, Xbox gaming platforms, LinkedIn professional networking, and hardware devices.
Investor focus centers squarely on Azure growth rates and AI product monetization. These factors will likely determine stock direction following the earnings report.
New infrastructure investments demonstrate Microsoft’s commitment to capturing AI market share. The multi-model strategy positions Azure to serve diverse customer needs across industries.
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