Microsoft Corp (NASDAQ:MSFT) is set to report fiscal third-quarter 2026 earnings on April 29, with investors closely watching whether accelerating artificial intelligence adoption can offset concerns around moderating cloud growth and heavy AI-related spending, according to Bank of America.
The stock is down about 13% year to date, underperforming the Nasdaq’s roughly 4% gain, as investor sentiment has been pressured by questions over near-term AI return on investment and Azure growth momentum.
In a note ahead of the results, Bank of America said the key focus areas will include Azure growth as additional AI capacity comes online, early traction in Microsoft’s Copilot monetization strategy, and the stability of non-AI segments that underpin free cash flow.
Azure growth remains the central battleground for investor sentiment. The bank estimates Azure revenue rose 37.5% in constant currency last quarter, just shy of the 38% pace previously reported, noting that growth has been constrained more by compute capacity than by demand. Management had previously indicated Azure could have grown more than 40% absent those constraints.
Bank of America said the timing of new AI infrastructure coming online will be critical in determining whether Azure can reaccelerate. That said, a meaningful upside surprise in Azure growth would likely be required to drive the shares higher.
The firm also flagged capital expenditure trends, modelling a moderation to $26.9 billion in the quarter, up 61% year-on-year, compared with $29.9 billion in the prior quarter, which was up 89%.
Beyond cloud infrastructure, attention will turn to Microsoft’s Copilot rollout across its Microsoft 365 ecosystem, which remains an early but closely watched monetization lever for its AI strategy.
Bank of America estimates Copilot had roughly 15 million paid seats last quarter, or about 3.5% of Microsoft 365’s commercial installed base. While adoption is still modest, the bank said improved functionality, like agentic workflows and collaboration tools such as Copilot “Cowork” could support broader uptake.
The bank expects Microsoft to report 15.1% year-on-year growth in Microsoft 365 revenue and continued gains in Dynamics, with LinkedIn advertising trends also showing gradual improvement.
