OpenAI partnership in focus as Microsoft reports earnings

Microsoft (MSFT) is scheduled to report results of the third quarter of its fiscal year 2026 after the market close on Wednesday, April 29, with a conference call scheduled for 5:30 pm ET. What to watch for:

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EXPECTATIONS: In its fiscal second quarter, the company reported earnings and revenue that beat consensus forecasts.

Along with the Q2 results, the company noted that second quarter of fiscal year 2026 net income and diluted earnings per share were impacted by net gains from investments in OpenAI, which resulted in an increase in net income and diluted earnings per share of $7.6B and $1.02, respectively.

Current consensus EPS and revenue forecasts for Microsoft’s March-end quarter stand at $4.07 and $81.43B, respectively, according to data provided by S&P Global Market Intelligence.

NEW DEAL: In late February, OpenAI and Amazon (AMZN) announced a multi-year strategic partnership. Amazon will also invest $50B in OpenAI, starting with an initial $15B investment and followed by another $35B in the coming months when certain conditions are met, the companies announced.

In a joint statement from OpenAI and Microsoft, the companies stated: “As conversations around AI investments and partnerships grow and as OpenAI announces new funding and new partners as they did today, we want to ensure these announcements are understood within the existing construct of our partnership. Nothing about today’s announcements in any way changes the terms of the Microsoft and OpenAI relationship that have been previously shared in our joint blog in October 2025. The partnership remains strong and central. Microsoft and OpenAI continue to work closely across research, engineering, and product development, building on years of deep collaboration and shared success.”

Earlier this week, Microsoft announced further changes to its partnership with OpenAI. It said, “Today, we are announcing an amended agreement to simplify our partnership and the way we work together, grounded in flexibility, certainty and a focus on delivering the benefits of AI broadly. The greater predictability in the amended agreement strengthens our joint ability to build and operate AI platforms at scale while providing both companies the flexibility to pursue new opportunities. The agreement spells out: Microsoft remains OpenAI’s primary cloud partner, and OpenAI product swill ship first on Azure, unless Microsoft cannot and chooses not to support the necessary capabilities. OpenAI can now serve all its products to customers across any cloud provider; Microsoft will continue to have a license to OpenAI IP for models and products through 2032. Microsoft’s license will now be non-exclusive; Microsoft will no longer pay a revenue share to OpenAI; Revenue share payments from OpenAI to Microsoft continue through 2030, independent of OpenAI’s technology progress, at the same percentage but subject to a total cap; Microsoft continues to participate directly in OpenAI’s growth as a major shareholder.”

Following that announcement, Evercore ISI said this revised agreement should not “come as a major surprise to investors at this point” given that Microsoft has increasingly signaled interest in a broader multi-model strategy and that OpenAI has “clear incentives to expand distribution more broadly across the market.” The agreement gives Microsoft greater clarity, flexibility and economic certainty in exchange for reduced exclusivity, says the analyst, who adds that “understanding how the new one directional revenue share structure impacts Azure economics is likely to be an important question on Wednesday’s call.” Evercore maintains an Outperform rating and $580 price target on Microsoft shares.

Meanwhile, Barclays said it views the new OpenAI agreement as a positive for Microsoft. Both Microsoft and OpenAI had been moving towards independence and the new agreement “seems a lot more workable for both sides,” the analyst tells investors in a research note. Barclays points out that Microsoft now receives revenue until 2030 and maintains intellectual property rights until 2032. The firm keeps an Overweight rating on Microsoft shares with a $600 price target.

WALL STREET LESS BULLISH: On February 4, Stifel downgraded Microsoft to Hold from Buy with a price target of $392, down from $540. Given the well-documented Azure supply issues, coupled with Google’s (GOOGL) strong Google Cloud Platform and Gemini results and growing Anthropic momentum, a near-term Azure acceleration is unlikely, the analyst told investors. FY27 is also likely to have less in-period revenue recognition as FY26 befitted from several product cycles, the firm added. Stifel is modeling 2027 EPS of $18.70, which is “meaningfully below” consensus, the analyst stated.

Also in early February, Melius Research downgraded Microsoft to Hold from Buy with a $430 price target. Microsoft’s 365 business faces threats from AI, meaning it needs to increase its capex markedly to keep pace with Google and Amazon (AMZN), so free cash flow may take another hit, the analyst told investors. If Microsoft doesn’t increase spending now, it reflects either an execution issue or a need to manage earnings, and “neither is good,” the analyst added.

More recently, Oppenheimer lowered the firm’s price target on Microsoft to $515 from $630 and kept an Outperform rating on the shares. Investor concerns over AI disruption to the M365 franchise, future capex growth, increasing competitive pressures, and perception that management is playing catch-up in the AI market are unlikely to be resolved by the Q3 update. However, Oppenheimer sees a favorable earnings set-up from Azure business showing upside and a more constructive post-earnings estimate revision trend supporting the stock, the analyst added.

Meanwhile, BMO Capital lowered the firm’s price target on Microsoft to $505 from $575 and keeps an Outperform rating on the shares ahead of earnings. With ongoing investor concern for software and results that will likely have modest upside, the firm does not think Microsoft’s March quarter report will serve as a “liberating event,” also noting that FY27 consensus capex estimates may be “too low”, the analyst told investors. BMO further attributed its price target cut to compression in software multiples.

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