Is Microsoft (MSFT) Stock a Buy Ahead of Wednesday’s Earnings?

TLDR

• Microsoft reports Q2 FY2026 earnings after market close on January 28, with Wall Street expecting earnings of $3.91 per share and revenue of $80.28 billion
• The stock has beaten earnings estimates in nine consecutive quarters and is up 7% in 2025, though down 14% from its all-time high
• Azure cloud business grew 40% year-over-year in Q1, driven by AI applications and access to multiple generative AI models including ChatGPT, Grok, Llama, and Claude
• Several analysts maintained Buy ratings but lowered price targets to around $600 due to broader software sector valuation pressures, not Microsoft’s fundamentals
• Options traders expect a 5.41% move in either direction following the earnings report, while the stock now trades at 28.5 times forward earnings versus its five-year average of 31.5 times

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Microsoft reports its fiscal 2026 second quarter earnings on January 28 after market close. Wall Street forecasts earnings of $3.91 per share, up 21% year-over-year.

Microsoft Corporation, MSFT

Revenue is expected to reach $80.28 billion, representing a 15% increase from the same quarter last year. The company has exceeded earnings estimates in each of the past nine consecutive quarters.

The stock is up about 7% in 2025. However, it remains down nearly 14% from its all-time high reached in late October.

Investors are focused on Azure’s performance and the company’s AI initiatives. Azure cloud revenue grew 40% year-over-year in the first quarter.

Azure Powers AI Growth Strategy

Azure has emerged as a top platform for building AI applications. The service gives users access to multiple generative AI models.

Microsoft maintains a large ownership stake in OpenAI, creator of ChatGPT. But Azure also provides access to other AI models including X’s Grok, Meta Platforms’ Llama, and Anthropic’s Claude.

New AI data centers in Atlanta and Wisconsin should support continued Azure growth. Karl Kierstead of UBS noted this expansion while maintaining a Buy rating on the stock.

Microsoft’s Copilot product within Office has gained traction. But Azure remains the centerpiece of the company’s AI strategy.

The platform’s multi-model approach differentiates it from competitors. This flexibility attracts developers and enterprises building AI applications.

Valuation Concerns Drive Price Target Cuts

Several analysts recently trimmed their price targets on Microsoft. UBS lowered its target to $600 from $650.

Cantor Fitzgerald, Wells Fargo, and Mizuho Securities also reduced their targets. All three firms maintained Buy-equivalent ratings.

These cuts reflect broader software sector valuation pressures. Analysts emphasized the changes weren’t due to weakening Microsoft fundamentals.

The stock now trades at 28.5 times forward earnings. This represents a discount to its five-year average of 31.5 times forward earnings.

Prior to October, Microsoft traded above 32 times forward earnings. Most big tech stocks trade around 30 times forward earnings.

Options traders expect a 5.41% move in either direction following the earnings announcement. Wall Street maintains a Strong Buy consensus rating based on 32 Buy recommendations and two Hold ratings.

The average price target of $626.14 suggests 34.38% upside potential from current levels. Microsoft operates multiple business segments beyond cloud computing including Office productivity software, Xbox gaming, LinkedIn, and hardware products.

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