TLDR
- Wall Street expects Microsoft to beat earnings estimates when it reports fiscal Q2 results on January 28, with EPS projected at $3.92 and revenue at $80.28 billion.
- Cantor Fitzgerald cut its price target to $590 from $639, while UBS reduced its target to $600 from $650, citing software sector valuation compression.
- Azure cloud revenue growth is the key focus, with Microsoft guiding for 37% growth versus 40% in the previous quarter.
- Morgan Stanley maintained its $650 price target, arguing Microsoft’s current valuation doesn’t reflect its long-term growth potential.
- Analyst checks indicate strong AI and Azure demand, with Microsoft’s remaining performance obligation expected to show record quarter-over-quarter growth at $392 billion.
Microsoft faces a curious situation heading into its January 28 earnings report. Analysts expect the company to deliver another solid quarter, but several firms are lowering their price targets anyway.
The stock closed at $457.70 on Friday, up 1.5% for the day. However, shares are down 6.7% so far in 2026 through Thursday’s close.
Wall Street projects earnings per share of $3.92 for the fiscal second quarter, representing 21.4% year-over-year growth. Revenue is forecast to reach $80.28 billion, up 15.3% from the same period last year.
Cantor Fitzgerald analyst Thomas Blakey maintained an Overweight rating but slashed the firm’s price target to $590 from $639. UBS followed suit, cutting its target to $600 from $650 while keeping a Buy rating.
The reductions don’t stem from concerns about Microsoft’s upcoming results. Instead, they reflect broader market dynamics affecting software stocks.
Blakey noted that valuation multiples across the entire software sector are compressing. Microsoft isn’t escaping this trend, even with strong fundamentals.
Cantor Fitzgerald now values the stock at 29 times expected earnings for the calendar year. That represents a discount to its average multiple over the past year.
Azure Growth Takes Center Stage
Azure cloud revenue will be the primary focus when Microsoft reports next week. The company guided for 37% revenue growth in Azure for the fiscal second quarter.
That marks a slowdown from 40% growth in the previous quarter. However, Cantor Fitzgerald sees potential for Microsoft to beat its own guidance.
Blakey’s research checks came back positive for AI and Azure demand. Customers are increasingly focused on getting real value from AI solutions, with partners reporting larger expansion deals among big clients.
UBS analyst Karl Keirstead raised his estimates for Azure growth. He also believes Wall Street’s projections for Microsoft’s 2027 capital expenditures are too high.
Keirstead said Microsoft deserves a premium valuation compared to other software companies. But the sector-wide derating still justified lowering the price target.
Bullish Voices Push Back
Not everyone agrees with the cuts. Morgan Stanley reiterated an Overweight rating and $650 price target in its earnings preview.
The firm argues that Microsoft’s current valuation doesn’t properly account for its long-term growth trajectory. If the company continues beating estimates and raising guidance, those results should eventually lift the stock price.
Jefferies analyst Brent Thill maintained a Buy rating with a $675 price target. He pointed out that Microsoft stock has dropped 18% since the fiscal first-quarter results, despite announcing major commitments worth $250 billion to OpenAI and $30 billion to Anthropic.
The stock’s multiple has contracted 23% as investors rotate into semiconductor stocks. Thill expects Microsoft’s remaining performance obligation to show the largest quarter-over-quarter increase ever in Q2.
That metric grew 51% to $392 billion in Q1 FY26. The Q2 number should benefit from the inclusion of the OpenAI and Anthropic Azure compute agreements.
Citi analyst Tyler Radke cut his price target to $660 from $690 but maintained a Buy rating. He expects Azure to surpass Street expectations for Q2, though he lowered estimates for non-Azure businesses due to weaker PC forecasts.
Mizuho analyst Gregg Moskowitz reduced his target to $620 from $640. His channel checks showed overall strength, with public cloud data points “generally good” and AI adoption “very strong.”
Wall Street maintains a Strong Buy consensus on Microsoft with 32 Buy ratings and two Hold recommendations. The average price target of $628.98 suggests 42% upside from current levels.
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