TLDR
- Microsoft posts fiscal Q2 2026 results Wednesday after market close with consensus at $3.91 EPS and $80.3 billion revenue
- Azure cloud revenue growth forecast at 38.4% compared to prior quarter’s 40%, though upside possible
- Capital expenditures hit $34.9 billion in Q1 with management indicating faster growth ahead in fiscal 2026
- Memory price inflation could constrain forward guidance as AI hardware demand surpasses available supply
- Shares trade at 28.5x forward earnings versus five-year average of 31.5x with 32 Buy ratings from analysts
Microsoft announces fiscal second-quarter results Wednesday following the market close. Consensus estimates call for $3.91 per share earnings on $80.3 billion in revenue.
Last year’s comparable quarter produced $3.23 per share on $69.6 billion revenue. The company has exceeded analyst estimates for nine straight quarters.
The stock finished Tuesday at $480.58, posting 7.5% gains over 12 months. Shares are up approximately 7% year-to-date but remain 14% off October’s record peak.
Investor focus centers on three critical areas. Azure cloud metrics lead the pack. AI infrastructure capital allocation follows closely. Traditional software segment strength rounds out the list.
Azure Cloud Metrics in Spotlight
Analysts project Azure revenue growth of 38.4% for the quarter. That marks a slight deceleration from the previous quarter’s 40% pace.
Stifel analyst Brad Reback anticipates stronger results. He forecasts Azure delivering roughly 200 basis points above Street expectations.
Reback points to solid economic fundamentals and surging OpenAI adoption. Management commentary suggests demand continues exceeding Azure capacity. He carries a Buy rating with a $520 target.
Azure has established itself as a premier AI application development platform. The platform provides developers access to multiple generative AI models.
Microsoft maintains substantial equity in OpenAI, the company behind ChatGPT. Azure simultaneously supports alternative models including X’s Grok, Meta’s Llama, and Anthropic’s Claude.
Capacity expansion through new Atlanta and Wisconsin facilities should drive continued growth. UBS analyst Karl Kierstead noted these developments while maintaining his Buy stance.
Capital Spending and Cost Pressures
First quarter capital expenditures totaled $34.9 billion. The spending exceeded analyst projections.
CFO Amy Hood indicated in October that fiscal 2026 capex would increase faster than fiscal 2025 levels. Management’s tone on investment pacing will signal confidence in AI opportunity trajectory.
Options traders are pricing a 5.41% move following the announcement. Technology giants continue pouring resources into AI infrastructure as adoption accelerates.
Rising memory costs pose challenges. Component prices have climbed as AI hardware requirements outpace manufacturing capacity.
Raymond James analyst Andrew Marok expects memory inflation to moderate guidance increases. He maintains an Outperform rating with a $600 target price.
Marok suggested capacity limitations will temper investor response to Azure figures. Supply constraints remain a near-term obstacle despite his optimistic long-term view.
Valuation Picture and Street Sentiment
Multiple analysts have reduced price targets recently. UBS lowered its target from $650 to $600. Cantor Fitzgerald, Wells Fargo, and Mizuho Securities made similar adjustments.
Each firm retained Buy-equivalent recommendations. The modifications reflect broader software sector multiple compression rather than company-specific deterioration.
The stock currently trades at 28.5 times forward earnings. That compares to a five-year average multiple of 31.5 times. Shares commanded valuations above 32 times forward earnings prior to October.
Raymond James analyst Andrew Marok dismissed software obsolescence fears related to AI capabilities. He characterized M365 as enterprise-critical infrastructure. Migration away would require extensive organizational restructuring for most clients.
Office’s Copilot feature continues attracting users. Azure nevertheless represents the core pillar of Microsoft’s AI approach.
Analyst consensus stands at Strong Buy. Thirty-two firms recommend buying while two suggest holding.
Average price targets reach $626.14. That level represents 34% appreciation potential from Tuesday’s close.
The company introduced its Maia 200 accelerator chip Monday. The processor marks the second iteration of Microsoft’s proprietary silicon development efforts.
Get 3 Free Stock Ebooks
Discover top-performing stocks in AI, Crypto, and Technology with expert analysis.
- Top 10 AI Stocks - Leading AI companies
- Top 10 Crypto Stocks - Blockchain leaders
- Top 10 Tech Stocks - Tech giants
