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After nearly a year of volatile downward movement, Microsoft (MSFT) shares have retreated nearly 30% from their all-time highs. The market’s core concerns are centered on two issues: first, whether the $190 billion in capital expenditures for 2026 signals “unrestrained spending”; and second, whether the AI assistant Copilot can truly deliver on its commercial value. The fiscal 2026 fourth-quarter earnings report, scheduled for release after the market closes on July 29, will serve as a critical juncture for testing these doubts.
From a fundamental expectations perspective, the market’s anticipation for this earnings report is fairly high. Analysts generally project fourth-quarter revenue of approximately $87.4 billion, representing 14.3% year-over-year growth, with earnings per share estimated at $4.21, up 15.3% year-over-year. The growth engine Azure is guided for 39% to 40% constant-currency growth, broadly in line with recent quarters.
The variable most likely to trigger significant stock price volatility is the forward guidance on capital expenditures (CapEx). Last quarter’s $31.9 billion in spending already turned heads, while the market’s expectation for fiscal 2027 CapEx is approximately $22 billion — viewed as the “discipline” threshold. Should guidance significantly exceed this figure, concerns about free cash flow pressure would be further amplified.
However, the bullish case remains equally solid. Multiple institutions believe the market has overreacted to concerns about AI investment returns. Morgan Stanley expects Azure growth to reach an inflection point in the second half of the year, with new capacity translating into revenue contributions, and Copilot’s monetization potential on the enterprise side being underestimated. Deutsche Bank also noted that Microsoft’s current valuation is attractive. Additionally, starting July 1, Microsoft 365 Business has officially embedded Copilot as a standard feature, marking a shift from an add-on to a default configuration. This is expected to significantly drive growth in Copilot paid seats, potentially surpassing 25 million by year-end.
From a valuation perspective, Microsoft’s current price-to-earnings ratio stands at approximately 22.7x, significantly below its five-year average of roughly 32.5, placing it in a relatively undervalued range. Goldman Sachs and HSBC Research have set price targets of $610 and $567, respectively, implying substantial upside potential.
In summary, the key to this earnings report lies in whether Azure can sustain roughly 40% growth to validate the rationality of AI investments, and whether CapEx guidance can allay market concerns about a “capital black hole.” Should both metrics meet or exceed optimistic expectations, Microsoft shares could experience a significant valuation recovery rally.
