Microsoft reports fiscal fourth-quarter earnings on July 29, and analysts at The Motley Fool argue the print could end a year-long slide in the stock. Azure growth, a reworked OpenAI deal, and a valuation near multi-year lows form the case for a possible breakout.
Microsoft heads into its July 29 fiscal fourth-quarter report as the laggard of the "Magnificent Seven," and The Motley Fool argues that same report could turn the stock around. While most of its megacap peers have recovered from earlier sell-offs, Microsoft stock is down 20% year to date.
Why AI spending is starting to pay off
Investors have worried that Microsoft is overspending on artificial intelligence. In April, the company raised its capital expenditure forecast to $190 billion for fiscal 2026, 61% above the prior year. The stock fell in the fiscal third quarter that ended March 31 amid concerns over its OpenAI partnership and a slight dip in Azure revenue growth.
But the underlying numbers point the other way. Azure revenue rose 40% in fiscal Q3, beating estimates, while overall cloud revenue climbed 29%, up from 25% in Q2. Microsoft also reported a $627 billion backlog in the quarter, a 99% jump on the year-earlier period.
Management guided Azure growth to around 40% in Q4, and CEO Satya Nadella tied the reacceleration to new data-center capacity. According to The Motley Fool, Nadella said the company is moving aggressively to add capacity: "We are moving aggressively to add capacity aligned to our demand signals we see." Nadella also said the AI business now runs at a $37 billion annual revenue rate, up 123% year over year.
A valuation near multi-year lows
Microsoft recently revised its OpenAI agreement so that OpenAI is no longer an exclusive provider and no longer receives a revenue share, which reduces Microsoft's exposure and could open new revenue lines. Updated pricing for its software, alongside a new five-year cycle for many Office clients, may add another lift.
That backdrop meets a cheap stock valuation: shares trade at 22 times earnings and 19 times forward earnings, below the S&P 500 average and near the lowest level since 2018. Some 95% of analysts rate the stock a buy, with a median price target of $550 that implies 41% upside over 12 months.
A strong Q4 and a firm outlook on July 29 could, the analysis suggests, become the launching pad for a breakout after months of underperformance.
Source: The Motley Fool
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