Microsoft Earnings Beat Puts Analyst Price Targets Near $590

A beat that changed the conversation

Microsoft's fiscal fourth-quarter report, released July 29, did more than beat Wall Street estimates. It changed how analysts talk about the stock. Revenue for the quarter ended June 30, 2026 reached $90.0 billion, up 18% from a year earlier (17% in constant currency). Operating income rose 18% to $40.6 billion.1 GAAP net income jumped 31% to $35.8 billion, or $4.81 per diluted share. On a non-GAAP basis, earnings were $35.3 billion, or $4.74 per share, up 22% and 23% respectively.1

Every outlet covering the report agrees on how far it cleared expectations. Analysts had expected $87.62 billion in revenue and $4.24 in adjusted earnings per share, so Microsoft beat by roughly $2.4 billion on the top line and 50 cents on the bottom line.34 One breakdown puts the gaps at about 2.7% on revenue and nearly 12% on adjusted EPS.4 Pre-report previews had set expectations at about 15% revenue growth, so 18% was a clear acceleration, not a narrow win.7

With the next report due October 28, the stock has moved a long way in the weeks since. The question now is whether the July numbers still justify buying at today's price.15

Azure carried the quarter

The cloud business drove the result. Azure and other cloud services grew 43%, up from 40% the quarter before. Analysts surveyed by CNBC and StreetAccount had expected about 40% in constant currency.3 The Intelligent Cloud segment brought in $39.3 billion, up 32% and above the $38.16 billion consensus.3 Microsoft Cloud revenue overall was $59.3 billion, up 27%.2

On the earnings call, CFO Amy Hood said demand is still larger than the capacity Microsoft can supply. She credited the outperformance partly to efficiency gains across the company's CPU and GPU fleet and to bringing new capacity online sooner, which Microsoft then sold quickly.2 She also said GitHub Copilot usage came in stronger than expected after a June pricing change that ties cost to usage.2

Several milestones gave the story weight. Azure passed $100 billion in annual revenue for the first time, up 41% for the fiscal year. Full-year company revenue topped $331 billion.2 Microsoft 365 Copilot passed 30 million paid seats, up from 20 million in April.10 Commercial remaining performance obligations, the backlog of contracted revenue not yet recognized, rose 84% to $678 billion.4 Hood said nearly 90% of cloud revenue for the year came from customers other than frontier AI model developers.2 That figure matters because it answers worries that Microsoft's growth depends on OpenAI and a few other AI labs.

The weak spots

The quarter had soft areas. More Personal Computing revenue fell 4% to $12.9 billion.1 Windows OEM and devices declined 7%, and Xbox content and services fell 10%.4 These businesses are now small next to the cloud, but they show that the growth is concentrated in one part of the company.

Investors should also read the GAAP profit figure carefully. The 31% net income growth was helped by $3.4 billion in other income, compared with a $1.7 billion loss in the same line a year earlier.1 The non-GAAP growth rate of 22% better reflects how the core business performed. The call summary describes EPS growth as adjusted for the effect of the OpenAI investment.5 Twenty-two percent profit growth on 18% revenue growth is still excellent. It is just less dramatic than the headline number.

Spending and cash flow

The biggest concern is spending. Microsoft guided fiscal 2027 capital expenditures to $255 billion to $260 billion, roughly 35% more than the year just ended.6 Reports differ on the starting point. One preview compared the new guidance with about $190 billion for 2026.7 Another analysis put fiscal 2026 capital expenditures near $116 billion.20 The gap probably comes from different definitions, such as whether finance leases are counted, rather than a factual dispute. Either way, every account agrees the spending is rising sharply.

The cash-flow numbers show the cost. Operating cash flow rose 30% in the quarter to $55.4 billion, but free cash flow fell 23% to $19.6 billion.4 One price-target analysis said full-year free cash flow declined despite record earnings. The same writer said they would turn more cautious if capital spending keeps rising while free cash flow shrinks.2013 Microsoft's earnings call also flagged rising component prices and the margin effect of heavy AI infrastructure investment.19

Analysts swing from cutting to raising

The change in analyst sentiment is striking. Microsoft was out of favor in the first half of the year and faced mostly downgrades and price-target cuts. The July report reversed that.17 One June analysis noted the stock was down almost 20% year to date at the time.11 In July, Citi cut its target to $570 from $620, citing lower software valuations.18

Since then, target increases have followed one after another. Stifel upgraded the stock to Buy from Hold and raised its target to $575 from $530, citing Microsoft's ability to sustain mid-to-high-teens revenue growth and its increasingly model-agnostic AI strategy.16 Oppenheimer raised its target to $570 from $515. Cantor Fitzgerald went to $608 from $522, and Bank of America to $600 from $500.17 Oppenheimer analyst Brian Schwartz expects Azure growth near 46%, slightly above Microsoft's own forecast.18 More recently, Evercore ISI raised its target to $635 from $528, and Deutsche Bank moved to $600 from $550.1512

The consensus figures differ slightly by data provider but are close:

• About $588.65 across 56 analysts, with a Strong Buy average rating12
• $587.63, with individual targets ranging from $440 to $87015
• $586.14 among 37 analysts19

One count found 53 Buy or Strong Buy ratings against just two Holds and no Sells. It also counted 21 upward revisions to fiscal 2027 EPS estimates in a 30-day span, compared with eight cuts.13

Not every move is positive. Phillip Securities downgraded the stock to Neutral with a $515 target, citing the recent re-rating of the shares.12 Rothschild & Co Redburn kept a Neutral rating even after raising its target to $440.17

How much of the rally is already priced in

Reports disagree on the size of the immediate reaction. CNBC and Yahoo Finance reported an 8% gain in after-hours trading.310 Other trackers measured larger moves over the following sessions: about 15.5% after the report, 22% over the week, and about 25% across three days.191113 These figures are not contradictory. They measure different time windows, and together they show that buying kept coming after the first reaction.

The stock recently closed at $541.15, near the top of its 52-week range of $349.20 to $553.72. Its market value is about $4 trillion and it trades at roughly 30 times trailing earnings.15 That leaves only about 9% upside to the consensus target.12 One analyst who recommended buying near $500 in late September said most of the easy gains for the year had already been made. That was before another leg higher.17 By TheStreet's math, Oppenheimer's $570 target equals about 33 times fiscal 2026 adjusted earnings of $17.28. That is a premium multiple, but not an extreme one for a company growing profit above 20%.18

Forward estimates frame the valuation. TipRanks shows a fiscal-year EPS forecast of $19.74 on revenue of about $390.7 billion.19 Simply Wall St expects annual earnings growth of about 14% over the next several years. That is slower than last year's pace and below its estimate for the broader U.S. market.11 One community valuation on that site, at a $530 share price, put the stock at about 26 times fiscal 2027 earnings, with scenarios ranging from roughly $400 to $702.14

Our view: a hold for new money, a keeper for long-term owners

The July quarter answered the most important question about Microsoft's AI strategy: is the infrastructure spending turning into revenue? The answer was clearly yes. Azure accelerated at a scale of more than $100 billion, Copilot added seats quickly, and backlog grew 84%.410 Guidance for the September quarter calls for revenue of $89.85 billion to $90.95 billion and Azure growth of about 45%, so management expects the momentum to continue.313 Analysts expect $4.72 in EPS for the quarter.19

The stock has moved faster than the forecasts, though. At about 30 times trailing earnings and single-digit upside to the consensus target, buying today depends on Microsoft beating expectations again, not just meeting them.1512 Our reading is that Microsoft's business quality supports a premium valuation and that long-term holders have little reason to sell. For new buyers, the risk is less favorable than it was below $500. The October 28 report is the key test. If Azure grows around 45% and free cash flow stabilizes, the bullish targets near $600 look reachable. If Azure falls short while spending keeps rising, the stock has room to fall back.