Microsoft to Report Q2 Results on Jan 28, AI Business May Be Turning Point
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Jan 15 2026
0mins
Should l Buy MSFT?
Source: Fool
- Earnings Report Anticipation: Microsoft is set to announce its fiscal 2026 second-quarter results on January 28, with investors looking for further growth in its AI-related software and cloud businesses, especially after an 11% decline in stock price over the last three months, which could mark a turning point.
- Copilot Adoption Update: As of the fiscal 2026 first quarter, 90% of Fortune 500 companies are using Copilot, with global enterprises paying for over 400 million licenses for the 365 platform, indicating strong market demand that is expected to drive Microsoft's revenue growth.
- Azure Growth Acceleration: Microsoft's Azure cloud computing platform achieved a 40% revenue growth in the fiscal 2026 first quarter, with demand for AI data center capacity outstripping supply, resulting in a $392 billion order backlog, leading to plans to double data center capacity over the next two years.
- Stock Attractiveness: With Microsoft’s stock down 11% from its record high and a P/E ratio of 34.1, analysts project earnings of $15.75 per share by the end of fiscal 2026, suggesting a realistic 15% price increase potential over the next six months if growth continues.
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Analyst Views on MSFT
Wall Street analysts forecast MSFT stock price to rise over the next 12 months. According to Wall Street analysts, the average 1-year price target for MSFT is 631.36 USD with a low forecast of 500.00 USD and a high forecast of 678.00 USD. However, analyst price targets are subjective and often lag stock prices, so investors should focus on the objective reasons behind analyst rating changes, which better reflect the company's fundamentals.
34 Analyst Rating
32 Buy
2 Hold
0 Sell
Strong Buy
Current: 393.670
Low
500.00
Averages
631.36
High
678.00
Current: 393.670
Low
500.00
Averages
631.36
High
678.00
About MSFT
Microsoft Corporation is a technology company that develops and supports software, services, devices, and solutions. Its Productivity and Business Processes segment consists of products and services in its portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. It comprises Microsoft 365 Commercial products and cloud services; Microsoft 365 Consumer products and cloud services; LinkedIn, and Dynamics products and cloud services. The Intelligent Cloud segment consists of its public, private, and hybrid server products and cloud services. It comprises server products and cloud services, including Azure, and enterprise and partner services, including Enterprise Support Services. Its More Personal Computing segment primarily comprises Windows and Devices, including Windows OEM licensing; Gaming, including Xbox hardware and Xbox content; Search and news advertising, comprising Bing and Copilot, Microsoft News, and Microsoft Edge.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
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- Copilot License Sales Growth: As of Q2 2026, Microsoft 365's Copilot licenses reached 15 million, doubling year-over-year but representing only a 3.7% market penetration, indicating limited market uptake that could hinder future revenue growth.
- Azure Revenue Growth Slowdown: Azure's revenue grew 39% year-over-year in Q2, surpassing Wall Street's 37.1% forecast, yet slower than the previous quarter's 40%, suggesting a potential loss of momentum that may affect investor confidence.
- Data Center Capacity Shortage: Microsoft's order backlog surged 110% year-over-year to $625 billion, with 45% from OpenAI, which may limit Azure's expansion and increase investment risks due to reliance on external funding and revenue growth.
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- Performance Concerns: Microsoft's fiscal Q2 2026 results revealed strong overall performance; however, modest weaknesses in AI software and cloud services led to a more than 10% drop in stock price in one day, raising investor concerns about future growth.
- Copilot License Sales Growth: As of Q2 2026, Microsoft 365's Copilot licenses reached 15 million, doubling year-over-year but representing only a 3.7% market penetration, indicating limited market uptake that could hinder future revenue growth.
- Azure Revenue Growth Slowdown: Azure's revenue grew 39% year-over-year in Q2, surpassing Wall Street's 37.1% forecast, yet slower than the previous quarter's 40%, suggesting a potential loss of momentum that may affect investor confidence.
- Data Center Capacity Shortage: Microsoft's order backlog surged 110% year-over-year to $625 billion, with 45% from OpenAI, which may limit Azure's expansion and increase investment risks due to reliance on external funding and revenue growth.
See More
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- Strong Earnings but Stock Drop: Microsoft reported strong results for its fiscal 2026 second quarter, yet its stock fell over 10% due to modest weakness in AI software and cloud services, now down 22% from its record high, reflecting market concerns about future growth.
- Slow Copilot License Sales: As of the fiscal 2026 second quarter, only 15 million Copilot licenses for Microsoft 365 were sold, doubling year-over-year but representing a mere 3.7% market penetration, indicating insufficient market uptake that could hinder future revenue growth.
- Azure Growth Deceleration: Azure achieved a 39% year-over-year growth rate in the second quarter, exceeding Wall Street's expectations, yet slower than the previous quarter's 40%, with a staggering 110% year-over-year increase in order backlog to $625 billion due to data center capacity shortages, highlighting potential growth bottlenecks.
- Attractive Stock Valuation: With a current P/E ratio of 26.5, Microsoft is at its lowest valuation in three years, significantly lower than the Nasdaq-100's 32.8, and analysts project earnings to rise to $19.06 per share in fiscal 2027, resulting in a forward P/E of just 22.4, suggesting a buying opportunity for long-term investors.
See More
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- Surge in Capital Expenditure: Microsoft invested $88.2 billion in AI in 2025 and is on track to exceed that in 2026, indicating strong commitment to AI demand, which will further drive Nvidia's GPU requirements.
- Strong Cloud Demand: Google anticipates capital expenditures of $180 billion in 2026, primarily for servers and data centers, underscoring sustained demand for AI solutions, positioning Nvidia as a key beneficiary.
- Solid Market Share: Nvidia holds a commanding 92% share of the data center GPU market, with its four largest customers (Microsoft, Meta, Amazon, and Google) accounting for 40% of its sales, highlighting the company's robust competitive edge in AI.
- Optimistic Earnings Outlook: Nvidia expects a 65% year-over-year revenue growth for Q4 of fiscal 2026, up from 62% in Q3, and if actual results exceed expectations, it will further boost investor confidence and drive stock price appreciation.
See More
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- Expense and Yield Comparison: QLD has a slightly higher expense ratio than SSO, making it less appealing for cost-conscious investors, even though QLD delivered a stronger one-year return, its significantly deeper five-year drawdown highlights its high-risk profile.
- Portfolio Composition Differences: QLD allocates 53% of its portfolio to technology stocks, with top holdings including Nvidia, Apple, and Microsoft, while SSO tracks the S&P 500 with 503 holdings and a 35% allocation to tech, resulting in notable differences in risk and earning potential.
- Leverage Effects and Risks: Both ETFs utilize daily 2x leverage; while QLD's tech-heavy focus may attract investors seeking high returns, its higher volatility makes it suitable for short-term investors, whereas SSO offers relatively stable returns for those seeking consistency.
- Market Performance and Investment Strategy: As QLD and SSO track the Nasdaq-100 and S&P 500 respectively, the latter's diversification leads to lower volatility, although both can experience significant intraday fluctuations, requiring investors to choose ETFs based on their risk tolerance.
See More
Tech Stocks Plummet Amid AI Fatigue and Value Rotation
- Tech Stock Decline: Over the past three months, technology stocks have been on a downward trend, with significant losses among major players in the last week alone, indicating a shift in investor sentiment from growth to value stocks amid increasing volatility.
- Market Performance Comparison: Since Halloween, the Russell 1000 Value index has risen by 8.4%, while the tech-heavy Russell 1000 Growth index has fallen by 3.7%, reflecting a growing preference for value stocks as investors exhibit fatigue towards growth stocks.
- Microsoft Earnings Impact: Following Microsoft's fiscal second-quarter results that exceeded Wall Street expectations, the stock plummeted 11% in a single day due to signs of slowing cloud revenue, marking the largest drop since March 2020 and highlighting the market's sensitivity to tech stock performance.
- Concerns Over AI Technology: Growing concerns about AI technology potentially disrupting the software industry have led to a nearly one-third decline in the IGV Software index since its September peak, illustrating investor caution regarding the future of the tech sector and its economic implications.
See More
Amazon's Cloud Growth Lags Behind Rivals
- Market Share Decline: Amazon Web Services (AWS) reported a 20% growth in 2025, significantly trailing behind Google Cloud's 36% and Microsoft's Azure at 39%, indicating a weakening competitive position in the cloud infrastructure market that could impact future leadership.
- Revenue and Profit Comparison: AWS added over $21.2 billion in revenue in 2025, achieving an operating income of $45.6 billion, which is substantially higher than Google Cloud's $13.9 billion and Microsoft's Azure's $19 billion, highlighting AWS's profitability advantage, yet its growth rate lags behind competitors.
- Capital Expenditure Plans: Amazon is targeting $200 billion in capital expenditures for 2025, primarily for AWS and AI workloads, which may lead to negative free cash flow in 2026, but underscores the company's long-term commitment to its cloud business despite potential short-term financial strain.
- Stable Financial Performance: Amazon's quarterly revenue rose 14% to $213.4 billion in 2025, with operating income increasing 18% to $25 billion, indicating strong execution capabilities even as market reactions to its spending plans remain lukewarm, reflecting the company's resilience in financial performance.
See More
