Microsoft (NASDAQ: MSFT) has been a poor stock to own over the past year. It’s down nearly 30% from its all-time high, although it was down around 35% at the lows of its sell-off. However, I think that could all change on July 29, when Microsoft reports Q4 earnings, which could kick-start the stock’s long-awaited rebound.
Microsoft’s stock is undervalued and looks like a great buy right now. If the company reports soaring growth in a few key divisions, that could give the market exactly what it needs to see for a major rally in Microsoft’s stock.
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All eyes will be focused on two items
Microsoft is a huge company with a wide-ranging business spanning productivity software, gaming, hardware sales, and cloud computing. However, despite Microsoft’s size, two factors will drive the response to the earnings report.
First is cloud computing growth. Azure, Microsoft’s cloud computing platform, offers a glimpse into the strength of overall AI spending, as several companies, including OpenAI, run AI workflows on Microsoft’s servers. As Azure’s revenue rises, it shows that more computing capacity is coming online and that it’s being contracted out as quickly as it comes online.
Last quarter, Azure’s revenue rose 40% year over year. However, investors will want to see a significant acceleration in revenue this quarter.
Microsoft’s competitor in the cloud computing space, Alphabet, saw tremendous growth during its previous quarter. Google Cloud’s Q2 revenue rose 82% year over year, a major acceleration from Q1’s 63% growth. If Microsoft maintains its 40% growth rate, that may raise red flags, as it would show that Alphabet is expanding far faster than Microsoft. I doubt that happens, and if Azure can report rapid growth, that will be the first catalyst Microsoft stock needs to start a rebound.
The second, and maybe most important, factor will be the fiscal 2027 capital expenditure guidance. Alphabet’s stock got hammered following earnings after it bumped up capital expenditures by $10 billion. If the market deemed Microsoft’s spending unreasonable, a sell-off may ensue. However, Microsoft’s spending has already been tempered compared to its peers, so I don’t expect this to happen.
If Azure’s growth rate comes in ahead of expectations and capital exposure guidance is in line, I think Microsoft stock is primed to soar after July 29. But if it misses either of these two projections, the stock could tumble even further.
