Microsoft and Meta face diverging setups in $87.7B earnings test

Microsoft reports fiscal fourth-quarter results July 29 with Wall Street expecting $87.7 billion in revenue, a 15% year-over-year increase.

"Investors will be watching closely for updates around rising hardware prices and the company's investments in AI," Deutsche Bank analysts said in a recent note, flagging the concentration of Microsoft's $627 billion commercial backlog as a key variable.

Microsoft guided revenue to $86.7 billion to $87.8 billion, with Azure growth of 39% to 40% in constant currency. Analysts expect earnings of $4.24 per share, up from $3.65 a year ago, according to Visible Alpha. The company has beaten both earnings and revenue estimates for eight consecutive quarters. Last quarter, adjusted earnings of $4.27 topped the $4.06 consensus, while Microsoft Cloud revenue rose 29% to $54.5 billion.

Options pricing suggests Microsoft shares could swing 6% in either direction by week's end, a move that would test recent lows near $368 or push the stock above $417 for the first time in more than a month. The results follow Alphabet's 8% plunge after its AI spending disclosures, raising the stakes for how Microsoft frames its capital expenditure trajectory.

Microsoft's AI Spending Under Scrutiny

Microsoft's stock has lost nearly 20% of its value since January as investors weigh the payoff from its AI infrastructure buildout against rising costs. Paid Copilot subscriptions have surpassed 20 million, and the company plans to combine its consumer and enterprise Copilot offerings into a unified platform with additional AI agents and coding features.

Analysts will focus on Azure growth, Copilot monetization, cloud margins and management's commentary on AI investment returns. Microsoft's $627 billion commercial backlog provides revenue visibility that few peers can match, but the pace at which that backlog converts to recognized revenue — and at what margin — will determine whether the stock can recover its year-to-date losses.

Analyst Sentiment Remains Bullish

Eleven of 12 analysts tracked by Visible Alpha rate Microsoft a buy, with a mean price target of $549 implying 40% upside from current levels near $392. Morgan Stanley initiated coverage with an overweight rating and a $600 target. Oppenheimer maintained its buy rating with a $515 target ahead of the release.

The guidance raise could reset sentiment for the broader tech sector if Microsoft signals accelerating AI demand. Investors will watch the post-earnings call for updated capital expenditure plans and segment margin disclosures.

This article is for informational purposes only and does not constitute investment advice.