It’s been a tough year for Microsoft (NASDAQ:MSFT) shareholders. The stock, typically viewed as one of the safest plays in the entire stock market, has lost nearly a fifth of its value.
Concerns about elevated capital expenditures on artificial intelligence infrastructure and a software armageddon have extracted their pound of flesh.
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Microsoft will have the opportunity to prove the naysayers wrong when it reports its 2026 fiscal fourth-quarter earnings after the market closes on Wednesday, July 29.
Following the results, CEO Satya Nadella and the rest of Microsoft’s senior management will host a live conference call with Wall Street analysts to discuss the results.
The earnings report could send the stock soaring. Here’s why.
Image source: Motley Fool.
The chance to prove the company’s AI strategy is working
Microsoft’s stock has sold off for a few reasons.
The company has guided for $190 billion in capital expenditures in calendar year 2026, largely for AI infrastructure.
Investors are also concerned that the company’s AI digital assistant Copilot is not gaining traction and that Microsoft 365, its suite of office tools that powers the business world, could eventually be vulnerable to AI-made alternatives.
All the concerns are valid, of course. Copilot had about 20 million paid enterprise seats on Microsoft’s last earnings call, despite the company’s 450 million-plus Microsoft 365 subscribers.
Morgan Stanley analyst Adam Wood thinks Microsoft has a good opportunity on the upcoming earnings release to prove that its AI strategy is making progress.
Wood expects Azure, Microsoft’s cloud business benefitting from AI, to show accelerated growth over the next few quarters and for Copilot adoption to pick up steam as well.
Wood sees tremendous upside for Microsoft, particularly if Azure growth and Copilot adoption drive growth in Microsoft 365. Wood has a $795 price target as his bull case, which would imply more than a double from current levels.
Long-term investors can buy the stock
I do think long-term investors can buy the stock. While Microsoft could soar following its upcoming earnings results, investors should still be careful about trading around a near-term earnings event.
Other large AI companies that have reported high capex guidance have experienced significant sell-offs, and this poses a potential risk for Microsoft. The company could guide for higher-than-expected capex next quarter or in the calendar year.
