Microsoft (NASDAQ:MSFT) stock has rebounded in recent weeks, climbing about 17% from its late-March low after a period of depressed sentiment around the tech giant. That has been driven by worries about a “SaaSocalypse,” where AI agents are about to make software companies’ offerings obsolete, along with concerns about elevated CapEx.
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Looking at the software sector in general, Barclays analyst Raimo Lenschow is not sure Q1 will reverse the negative sentiment. The quarter is seasonally the weakest, macro conditions have offered limited support, and his recent checks paint a mixed picture. As Lenschow puts it, “we need company-specific stories to get excited.”
With Microsoft slated to report FQ3 earnings (March quarter) next week (April 29), does it have one of those up its sleeve? Not according to Lenschow, who thinks Microsoft “seems to have a tough setup.”
Lenschow expects Azure growth to come in broadly in line with expectations – around 38% to 39% year over year in constant currency, versus guidance of 37% to 38% – leaving limited room for upside. At the same time, while Copilot continues to progress from a product perspective, the analyst does not see it materially changing the trajectory of the Commercial Office segment in the near term.
Given that Microsoft’s CapEx guide for the next fiscal year is typically addressed in the third quarter, Lenschow expects early signals for FY27 spending. Market expectations currently sit at $168 billion, including lease commitments, which would represent roughly 10% year-over-year growth. However, given persistent supply constraints across the industry and more optimistic commentary from AWS and Google last quarter, Lenschow is “not quite sure that this number is totally realistic.”
“However,” he adds, “MSFT is in a lose-lose situation here as a non-raise vs consensus could be seen as ‘losing momentum’ and a meaningful raise would trigger a Return-on-Invested-Capital debate again.”
Meanwhile, Lenschow’s latest VAR (Value-Added Reseller) survey points to a softer backdrop for Microsoft compared to the prior quarter. Partners reported fewer large deal mentions and broadly flat momentum, even as forward demand indicators held steady. Looking more closely at overall activity, 20% of respondents said business declined by 1–5%, versus none reporting declines in the previous quarter. Expectations have also cooled at the higher end, with fewer partners projecting 10–20% year-over-year growth and a growing share now anticipating results in the down 1–10% range.
Furthermore, sentiment around Azure edged slightly higher, extending last quarter’s improvement, with more partners indicating that 80–100% of customers are either using or planning to adopt it over the next twelve months. Interest in Microsoft Copilot remained steady, with respondents continuing to highlight “significant customer engagement.”
So, down to business – what does this all mean for investors? Despite not expecting any FQ3 fireworks, Lenschow assigns MSFT shares an Overweight (i.e., Buy) rating, along with a $600 price target, implying 44% upside over the next 12 months. (To watch Lenschow’s track record, click here)
The broader Street isn’t holding back either. A total of 35 analysts side with the bullish view, and with just 3 Holds in the mix, MSFT carries a Strong Buy consensus. The $571.29 average price target suggests the rally may have further room to run, implying shares could trade about 36.5% higher over the coming year. (See MSFT stock forecast)
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.