Microsoft Before Q1 Earnings: Should Investors Buy the Stock?

Core Insights - Microsoft (MSFT) is expected to report first-quarter fiscal 2026 results on October 29, with revenue estimates at $74.96 billion, reflecting a 14.3% year-over-year growth [1] - The consensus estimate for earnings per share is $3.65, indicating a 10.61% increase compared to the previous year [1] Revenue and Earnings Estimates - Current quarter earnings per share is projected at $3.65, with estimates remaining stable over the past 30 days [2] - For the current fiscal year, earnings are expected to reach $15.40 per share, while next year's estimate is $17.88 [2] Factors Influencing Upcoming Results - Continued momentum in cloud and AI infrastructure investments is anticipated to support Microsoft's upcoming results [5] - The Productivity and Business Processes segment is projected to generate revenues between $32.2 billion and $32.5 billion, indicating a growth of 14% to 15% [6] - Microsoft 365 Commercial cloud revenues are expected to grow between 13% and 14% in constant currency [7] Azure and Intelligent Cloud Performance - Azure revenue is projected to grow by approximately 37% in constant currency, driven by strong AI infrastructure investments [8][14] - The Intelligent Cloud segment is expected to generate revenues between $30.1 billion and $30.4 billion, representing growth of 25% to 26% [12] Product Enhancements and Market Positioning - Significant product enhancements, including the rollout of GPT-5 capabilities and new features in Microsoft 365 Copilot, are likely to have contributed to improved adoption metrics [9][10] - The reimagined Microsoft Marketplace launched in September is expected to enhance discoverability and adoption of AI applications [10] LinkedIn and Gaming Division Outlook - LinkedIn is expected to deliver high single-digit revenue growth despite challenges in the hiring market [11] - The Gaming division is projected to experience robust activity, with major game releases supporting mid-single-digit revenue growth [20] Strategic Investments and Valuation - Microsoft is committed to capital expenditures exceeding $30 billion to scale AI infrastructure [22] - The company's cloud gross margin is expected to be around 67%, reflecting ongoing investments in AI infrastructure [23] - Microsoft shares have gained 24.2% year-to-date, trading at a forward 12-month P/S of 11.59X, indicating a premium valuation [24][28] Investment Thesis - Microsoft presents a compelling investment opportunity ahead of fiscal first-quarter 2026 results, supported by strong Azure growth and a $368 billion contracted backlog [31] - The company's strategic partnerships and comprehensive platform create durable competitive advantages, justifying its premium valuation [31] Conclusion - Microsoft's upcoming fiscal first-quarter 2026 results are expected to showcase strong cloud and AI momentum, making it an attractive investment despite competitive pressures [32]