Microsoft stock down 1% ahead of earnings: what to expect?

Shares of Microsoft edged lower ahead of its earnings report, with the stock down around 1% in early trading on Wednesday.

The move comes as investors positioned for key updates on cloud growth, capital spending, and artificial intelligence monetisation.

Microsoft’s earnings are expected to provide a critical update on whether its aggressive AI strategy is beginning to deliver tangible financial returns.

The broader market was also subdued. The S&P 500 and Nasdaq Composite were little changed, while the Dow Jones Industrial Average fell 232 points, or 0.5%.

The sentiment was dampened amid rising oil prices linked to a US blockade of Iranian ports and anticipation around monetary policy developments.

What to expect for MSFT earnings

Microsoft is scheduled to report its fiscal third-quarter results after the market close, with analysts surveyed by FactSet expecting adjusted earnings of $4.05 per share on revenue of $81.4 billion.

This compares with earnings of $3.46 per share on revenue of $70.1 billion in the same period last year, reflecting continued expansion driven by cloud computing and AI-related services.

Microsoft remains one of several major technology companies investing heavily in artificial intelligence infrastructure, including data centres and advanced computing capabilities.

While Wall Street initially welcomed these investments, sentiment has shifted as investors increasingly demand evidence of returns, particularly as elevated spending has weighed on free cash flow.

Analysts expect Microsoft to report capital expenditure of $37.5 billion for the quarter, significantly higher than $21.4 billion a year earlier.

Free cash flow is projected at $15.4 billion, down from $20.3 billion in the prior-year period.

Azure growth seen as key indicator

A central focus for investors will be the growth trajectory of Microsoft’s Azure cloud business, which serves as a key proxy for demand for AI services.

Wall Street expects Azure revenue growth of 39.7%, slightly above the prior quarter’s 39% expansion.

Any shortfall could weigh on the stock, given the importance of cloud performance to Microsoft’s overall valuation.

However, capacity constraints remain a potential limiting factor.

Deutsche Bank analyst Brad Zelnick said supply limitations could cap near-term growth as companies race to expand infrastructure.

He added that capital expenditure growth may moderate through fiscal 2027.

Analysts on MSFT stock

In a note cited by Investing.com, TD Cowen reiterated a Buy rating on Microsoft with a $540 price target, citing the company’s amended partnership agreement with OpenAI.

The firm estimates Microsoft could benefit from reduced revenue-sharing payments to OpenAI, amounting to approximately $700 million in fiscal 2026 and rising to $5.1 billion by fiscal 2030.

Previously, Microsoft was estimated to have paid around 20% of Azure OpenAI Services revenue to OpenAI.

TD Cowen said the revised structure could add 1% to 2% to Azure growth in fiscal 2027, while also easing capital expenditure pressures and reducing reliance on a single customer.

The agreement also allows OpenAI to diversify its infrastructure partnerships, with recent deals involving Google, Amazon, and Oracle.

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