All Eyes on Microsoft Stock Ahead of Earnings Next Week; Here's What Wall Street Expects

Microsoft (NASDAQ:MSFT) shares have been on the back foot in recent months, and have retreated by 16% since the company reported fiscal first quarter (September quarter) earnings in late October. With the tech giant set to deliver its FQ2 results next Wednesday (Jan 28), investors will be hoping the report will bring about a shift in sentiment.Claim 50% Off TipRanks PremiumUnlock hedge fund-level data and powerful investing tools for smarter, sharper decisions Stay ahead of the market with the latest news and analysis and maximize your portfolio's potential However, despite noting that the company appears to be performing well, Cowen analyst Derrick Wood is skeptical that it is about to happen. "While data points are strong, we think shares could remain range-bound until MSFT is able to deliver acceleration in Azure growth, which we don't anticipate for a couple more quarters," the analyst explained. That's not to say Wood is taking a bearish stance. The analyst expects 37% (in constant currency) growth for Azure in Q2, in line with management's guidance of 37% and only slightly below the Street's 37.5%. Recall that Azure posted 39% constant-currency growth in Q1. It's worth noting that Wood's checks and industry data indicate demand for compute across GPU and CPU workloads remains "highly encouraging," which he believes could ultimately add around 2 percentage points of upside to estimates, similar to the prior quarter. The analyst attributes the temporary slowdown in reaching 40%+ constant-currency growth mainly to the capacity constraints management highlighted in Q1. However, as additional capacity comes online in the second half of calendar 2026, Wood sees a path for Azure to re-accelerate into the 40%+ range, which could "help drive stronger stock performance & valuation uplift." Wood also points to Cowen's 2026 Enterprise Software Survey featuring "bullish demand indicators." It ranks Microsoft first for AI spending intentions, with 76% of respondents planning to allocate new AI budgets to Microsoft over the next year, ahead of GCP at 66% and AWS at 59%. In terms of overall cloud spending plans, Microsoft also rose year-over-year to the top spot, surpassing AWS for the first time in the survey. AI budgets favoring Microsoft and the "positive spend intentions" for CPU workloads are both encouraging, as they are "strong directional trends for Azure." As for the raw results, for FQ2, Wood is forecasting revenue of $80.7 billion, up 16% y/y (14% cc), slightly above the Street at $80.2 billion (up 15% USD). The analyst expects EPS of $3.98 compared to the Street at $3.93, a gross margin of 67.1% in line with consensus, and an operating margin of 45.4% vs. consensus at 45.6%. Looking ahead to F3Q, Wood is calling for revenue of $81.7 billion, rising 17% (15% cc), above the Street's $81.2 billion forecast. Wood's EPS estimate lands at $4.05 vs. consensus at $3.98, with an operating margin of 45.5% matching the Street's forecast. "Overall," Wood summed up, "we remain constructive on MSFT's medium-term positioning in AI & Cloud wallet capture." As such, Wood assigns a Buy rating on MSFT shares, although given "recent pressure in the sector," his price target goes from $655 to $625. Nevertheless, the new target still makes room for 12-month returns of 41%. (To watch Wood's track record, click here) Most analysts agree with that stance; MSFT stock claims a Strong Buy consensus rating, based on an uneven mix of 32 Buys and 2 Holds. The $630.64 average price target is almost the same as Wood's objective and suggests shares will climb 42.5% higher in the year ahead. (See MSFT stock forecast)