Microsoft (MSFT) is scheduled to report its fourth-quarter fiscal 2026 earnings on July 29. Strong growth in Azure, AI services, and enterprise software is expected to drive another solid quarter. However, soaring AI-related capital expenditures could continue to weigh on the stock.
Investor sentiment toward mega-cap technology companies has become increasingly cautious as AI infrastructure spending accelerates. Although companies argue that these investments are necessary to meet surging demand for AI services, investors remain concerned about the near-term impact on profit margins and, more importantly, how quickly these massive investments will generate meaningful returns.
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Alphabet's (GOOG) (GOOGL) recent earnings offer a clear example. The Google parent reported better-than-expected second-quarter results, with AI contributing to revenue growth across multiple businesses. Despite the strong performance, Alphabet shares declined after management raised its capital expenditure outlook, reflecting investor concerns over the growing cost of the AI race.
Microsoft could face similar scrutiny. Even if the company delivers another quarter of robust cloud and AI growth, management's commentary on AI infrastructure spending and future capital expenditure plans may ultimately have a greater influence on the stock's near-term direction than the earnings beat itself.
www.barchart.com Analysts Are Bullish on MSFT Stock Ahead of Q4 Earnings
Microsoft stock has lagged the broader market in 2026, but Wall Street remains bullish on MSFT as it prepares to report its fourth-quarter earnings. Microsoft's strong positioning in the AI and cloud computing space supports its investment case.
One of the biggest reasons for optimism is Azure's sustained momentum. Demand for Azure infrastructure continues to outpace supply, reflecting strong demand for its cloud computing platform. The ongoing shift toward cloud computing and AI-enabled applications across enterprises places Microsoft in a strong position for sustained growth.
MSFT’s quarterly results strengthen this view. In the third quarter, Microsoft generated $82.9 billion in revenue, up 18% year-over-year (YOY), while Azure and other cloud services revenue surged 40%. Microsoft's AI business also maintained exceptional momentum, surpassing a $37 billion annual revenue run rate, representing 123% YOY growth.
Adoption of Microsoft 365 Copilot continues to accelerate as enterprises embrace generative AI. The company now has more than 20 million paid Copilot seats. Moreover, the number of organizations deploying more than 50,000 seats has increased substantially over the past year, reflecting growing adoption among large enterprise customers.
Another encouraging indicator is Microsoft's expanding backlog of contracted revenue. Commercial remaining performance obligation (RPO), which represents future contracted revenue, climbed 99% YOY to $627 billion. Further, long-term commitments increased 138%, suggesting customers are making multi-year investments in Microsoft's AI and cloud ecosystem.
Looking ahead, the momentum is likely to sustain in the fourth quarter. Microsoft has guided Intelligent Cloud revenue to $37.95 to $38.25 billion, implying up to 28% growth, while Azure is projected to maintain approximately 40% constant-currency growth. The guidance suggests demand for Microsoft's cloud and AI services remains resilient.
Microsoft’s sturdy revenue growth is likely to support another quarter of solid earnings expansion. Wall Street analysts forecast fiscal fourth-quarter earnings of $4.21 per share, representing a 15.3% increase from the prior-year period.
Overall, Microsoft's investment case remains compelling. Rapid AI adoption, sustained Azure growth, and a rising base of long-term enterprise contracts provide a solid foundation for future growth. In addition, the recent pullback in the stock price has made the shares more attractive for long-term investors.
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www.barchart.com Conclusion
Microsoft appears well-positioned to deliver another solid quarter, supported by resilient cloud and AI demand, and increasing long-term enterprise commitments. These strengths continue to bolster analysts’ bullish outlooks on the company’s prospects.
Nevertheless, investors shouldn't overlook the near-term challenges. Microsoft's aggressive AI infrastructure investments are likely to weigh on free cash flow and profit margins, making capital spending a key metric to monitor alongside revenue and earnings.
On the date of publication, Sneha Nahata did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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