Microsoft Earnings: Buy the Dip or Wait?
💡 Key Takeaway
Microsoft's strong earnings beat and disciplined AI spending make it a compelling buy, especially after its 15% decline over the past year.
What Happened: Microsoft Crushes Q4 Earnings
Microsoft reported better-than-expected Q4 2026 earnings after market close on Wednesday. Revenue hit $90 billion, up 18% year-over-year and beating the $87.6 billion consensus. Operating income also rose 18% to $40.6 billion.
Adjusted earnings per share came in at $4.74, a 31% improvement over last year and well above the $4.24 consensus. However, $0.27 of that came from special items, including a $3.2 billion gain from its Anthropic investment. Excluding those, EPS was $4.47, still up 15.8% and beating estimates.
Azure and other cloud services revenue surged 43% year-over-year, driving the Intelligent Cloud segment to $39.3 billion, up 32%. This underscores Microsoft's strong position in cloud computing, where it trails only Amazon's AWS.
Unlike rivals Alphabet and Meta, Microsoft kept its full-year capex forecast unchanged at $175 billion, despite quarterly capex doubling to $35.8 billion. This discipline was rewarded with an 8% after-hours stock jump.
Why It Matters: Azure Growth and Capex Discipline
Azure's 43% revenue growth shows Microsoft is capitalizing on AI demand, similar to Google Cloud and AWS. This positions Microsoft to capture more enterprise AI workloads, which could drive sustained revenue growth.
By holding the line on capex, Microsoft signals confidence in its AI investments without overpromising. This contrasts with Alphabet and Meta, whose higher capex forecasts spooked investors. Microsoft's approach may reduce perceived risk and support its stock valuation.
The stock's 15% decline over the past year, despite strong fundamentals, has lowered its forward P/E from 30 to 20. This creates a potential buying opportunity if growth continues. However, investors should watch for any signs of slowing Azure growth or margin pressure from AI spending.
Source: The Motley Fool
Analysis generated by Bobby AI quantitative model, reviewed and edited by our research team. This is not financial advice. Always do your own research before making investment decisions.
Bobby Insight
Microsoft is a buy after its earnings beat and disciplined capex, offering a compelling entry point.
Azure's 43% growth and steady capex signal sustainable AI monetization. The stock's 15% decline and lower P/E provide a margin of safety. Risks include potential slowdown in cloud spending or AI competition, but current fundamentals support a bullish outlook.
What This Means for Me
