Wall Street bullish on Microsoft ahead of earnings

Microsoft (MSFT) is scheduled to report results of the fourth quarter of its fiscal year 2025 after the market close on Wednesday, July 30, with a conference call scheduled for 5:30 pm ET. What to watch for:

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

Satya Nadella, chairman and CEO of Microsoft, said along with the Q3 results: “Cloud and AI are the essential inputs for every business to expand output, reduce costs, and accelerate growth. From AI infra and platforms to apps, we are innovating across the stack to deliver for our customers.”

“We delivered a strong quarter with Microsoft Cloud revenue of $42.4B, up 20% – up 22% in constant currency – year-over-year driven by continued demand for our differentiated offerings,” added executive vice president and CFO Amy Hood.

On the day following that report, Jefferies raised the firm’s price target on Microsoft to $550 after the company delivered “a strong beat across the board” in fiscal Q3 and guided Q4 total revenue two points ahead of consensus. Azure growth of 35% year-over-year in constant currency was three points above the high end of the guidance with outperformance driven by non-AI and Q4 guidance implies just 1 point of deceleration at the low end, noted the analyst, who reiterates Microsoft as a “Top Pick” at the time of the last report.

Current consensus EPS and revenue forecasts for Microsoft’s June-end quarter stand at $3.38 and $73.83B, respectively, according to LSEG Data and Analytics.

WALL STREET VIEWS: On May 4, Phillip Securities downgraded Microsoft to Accumulate from Buy with an unchanged price target of $480, citing price performance for the downgrade. However, the analyst believes Microsoft is well positioned to benefit from the rising demand for large artificial intelligence models, boosting Azure’s appeal and driving incremental revenue, adding that Microsoft’s growth is driven by cloud-based offerings and supported by a broad base of enterprise customers.

In mid-June, Citi raised the firm’s price target on Microsoft to $605 from $540 and kept a Buy rating, while also adding an “upside 90-day catalyst watch” on the shares. Citi said at that time that Microsoft remained its top pick in software given the company’s “relative defensiveness in a choppy macro environment,” artificial intelligence product cycle and “reinforced conviction” that Street estimates on Azure may be too low for fiscal 2026. The firm believes the share catalyst will be fiscal Q4 earnings when fiscal 2026 guidance is announced as both Microsoft and OpenAI AI revenue continue to ramp.

In July, Oppenheimer upgraded Microsoft to Outperform from Perform with a $600 price target The firm believes investors’ attention on the ramp of Microsoft’s AI revenue stream will only increase as Azure’s growth remains strong, offering not only valuation support but also upside potential as this revenue stream continues scaling fast and investors embrace Microsoft as one of the long-term AI winners in software. Oppenheimer further believes that sustaining robust growth in its AI business is not fully in the stock, nor is it a re-acceleration in Azure’s growth in FY26. Microsoft is also one of only a few vendors in the software industry capable of delivering a Rule of 60 business profile and at unprecedented scale, which the firm thinks lends good support to premium multiples.

More recently, Raymond James raised the firm’s price target on Microsoft to $570 from $490 and kept an Outperform rating on the shares. Azure could land at the high end of guidance for June, and Windows/OEM and Devices could surprise to the upside, aided by tariff-related pull-ins that aid the Windows 11 refresh cycle, the analyst told investors in a preview.

Meanwhile, Stifel raised the firm’s price target on Microsoft to $550 from $500 and kept a Buy rating on the shares. Healthy results from Google Cloud (GOOGL) and ServiceNow (NOW) last week and “strong checks” point to a quarter-over-quarter acceleration in the enterprise spending environment, which the firm sees enabling Microsoft’s Azure to post about 100-200 basis points of upside to the company’s 34%-35% year-over-year constant currency growth guidance, the analyst told investors in its own preview. The firm expects Azure growth to remain in the mid-30% range in coming quarters, the analyst added.

Among analysts tracked by Bloomberg that have updated their views on Microsoft within the last twelve months, 65 have Buy or equivalent ratings, six have Hold or equivalent ratings, one has a Sell or equivalent rating and the average twelve month price target of 54 of those analysts is $554.08.

OPENAI: In May, the Board of Microsoft-backed OpenAI said it had “made the decision for the nonprofit to retain control of OpenAI after hearing from civic leaders and engaging in constructive dialogue with the offices of the Attorney General of Delaware and the Attorney General of California.” In a letter to employees and stakeholders, OpenAI’s CEO Sam Altman said, “OpenAI is not a normal company and never will be. Our mission is to ensure that artificial general intelligence (AGI) benefits all of humanity… We are committed to this path of democratic AI… We look forward to advancing the details of this plan in continued conversation with them, Microsoft, and our newly appointed nonprofit commissioners. OpenAI was founded as a non-profit, is today a non-profit that oversees and controls the for-profit, and going forward will remain a non-profit that oversees and controls the for-profit. That will not change. The for-profit LLC under the non-profit will transition to a Public Benefit Corporation with the same mission… The non-profit will continue to control the PBC, and will become a big shareholder in the PBC, in an amount supported by independent financial advisors, giving the non-profit resources to support programs so AI can benefit many different communities, consistent with the mission.”

In late June, The Wall Street Journal’s Berber Jin reported that OpenAI and Microsoft were in contract negotiations that hinge on when OpenAI’s systems will reach artificial general intelligence. The contract stipulates that OpenAI can limit Microsoft’s access to its tech when its systems reach AGI, which Microsoft is fighting. Microsoft hopes to remove the AGI clause or secure exclusive access to OpenAI’s IP even after AGI is declared, according to the report.

Bloomberg’s Matt Day, Shirin Ghaffary, Dina Bass, and Brody Ford stated in their own report that Microsoft is in advanced talks to land a deal that could give it ongoing access to critical OpenAI technology even if OpenAI reaches its goal of building artificial general intelligence. Negotiators have been meeting regularly, and an agreement could come together in a matter of weeks, according to three people with knowledge of the situation.

JOB CUTS: In May, a Microsoft spokesperson told CNBC that the company, which had 228,000 employees worldwide, was laying off 3% of employees across all levels and geographies.

After CNBC reported that Microsoft was planning to lay off about 3% of its global workforce, or about 7,000 employees, Barclays said the firm views this move as “a commitment to profitable growth,” particularly as AI infrastructure costs continue to ramp in the medium term. While Microsoft’s guided operating margin for FY25 was intact without these actions, the reduction today is likely to serve as additive to margins in FY26, said the analyst, who has an Overweight rating on Microsoft shares.

Then in July, CNBC’s Jordan Novet reported that Microsoft was planning to lay off about 9,000 employees, affecting less than 4% of its global workforce across different teams, geographies and levels of experience. “We continue to implement organizational changes necessary to best position the company and teams for success in a dynamic marketplace,” a Microsoft spokesperson said in an email.

In a blog post on July 24, Microsoft CEO Satya Nadella said, “By every objective measure, Microsoft is thriving – our market performance, strategic positioning, and growth all point up and to the right. We’re investing more in CapEx than ever before. Our overall headcount is relatively unchanged, and some of the talent and expertise in our industry and at Microsoft is being recognized and rewarded at levels never seen before. And yet, at the same time, we’ve undergone layoffs. This is the enigma of success in an industry that has no franchise value. Progress isn’t linear. It’s dynamic, sometimes dissonant, and always demanding. But it’s also a new opportunity for us to shape, lead through, and have greater impact than ever before.”

SENTIMENT: Check out recent Media Buzz Sentiment on Microsoft as measured by TipRanks.