Microsoft reports fiscal Q4 earnings on July 29 with its shares near a one-year low, down nearly 30% from their all-time high. Motley Fool contributor Keithen Drury points to two lines in the report — Azure's growth rate and fiscal 2027 capital expenditure guidance — as the ones that will drive the market's response.
Microsoft's stock sits near a one-year low heading into the company's fiscal Q4 report on July 29, and Motley Fool contributor Keithen Drury argues that report could kick-start the stock's long-awaited rebound. The shares are down nearly 30% from their all-time high and were down around 35% at the lows of the sell-off.
Azure's growth rate is the first test
Drury names cloud computing growth as the first of the two factors. Azure gives a glimpse into overall AI spending, he writes, because several companies including OpenAI run AI workflows on Microsoft's servers — as Azure's revenue rises, it shows computing capacity coming online and being contracted out as quickly as it arrives.
Last quarter, Azure's revenue rose 40% year over year. Drury expects investors to look for a significant acceleration on that figure this quarter.
The comparison with Alphabet sets the bar. Google Cloud's Q2 revenue rose 82% year over year, a major acceleration from Q1's 63% growth. Holding at 40% may raise red flags, Drury writes, because it would show Alphabet expanding far faster than Microsoft — though he doubts that happens.
Capital spending guidance is the second
Guidance on fiscal 2027 capital expenditure is the second factor, and maybe the most important one, according to Drury. Alphabet's stock got hammered following earnings after the company bumped up capital expenditures by $10 billion.
A sell-off may follow if the market deems Microsoft's spending unreasonable, Drury writes, but he does not expect it — Microsoft's spending has already been tempered compared with its peers. He describes the stock as undervalued at current levels.
Both conditions have to land together. If Azure's growth comes in ahead of expectations and capital expenditure guidance is in line, Drury sees the stock primed to rise after July 29; a miss on either projection could send it lower still.
Source: Motley Fool
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