Microsoft(US:MSFT) ZACKS·2026-01-07 17:00Core Insights - Microsoft shares have declined approximately 9% over the past three months, presenting a potential entry point for long-term investors despite concerns over capital expenditures and AI monetization [1][2] - The company reported strong fiscal Q1 2026 results with revenues of $77.7 billion, an 18% year-over-year increase, and operating income of $38 billion, up 24% [2] - Azure cloud services experienced a remarkable 40% growth in constant currency, significantly outpacing Amazon's AWS growth of approximately 20% [5][17] Financial Performance - Microsoft generated $45.1 billion in operating cash flow during Q1, a 32% increase, and returned $10.7 billion to shareholders through dividends and repurchases [11] - The company holds $102 billion in cash and has operating margins nearing 50%, allowing for substantial investments in AI infrastructure [12] - The Zacks Consensus Estimate for fiscal 2026 earnings is projected at $15.61 per share, indicating a 14.44% year-over-year growth [13] Azure and AI Growth - Azure's growth trajectory is strong, with management guiding for 37% constant currency growth in the second quarter, driven by demand exceeding available capacity [5][7] - The Copilot ecosystem has reached 150 million monthly active users, reflecting a 50% sequential growth and strong enterprise adoption [8][9] - Recent acquisitions and product launches, such as the Osmos acquisition and Microsoft 365 Copilot Business, enhance Microsoft's position in the AI market [10] Market Position and Valuation - Microsoft trades at a forward price-to-sales ratio of 10.17, a premium to the industry average of 9.11, justified by its competitive advantages [14] - The company is well-positioned against major cloud rivals, with Azure's growth rate significantly exceeding that of AWS [17] - Microsoft's second-quarter fiscal 2026 revenue guidance suggests continued double-digit growth, making it an attractive investment opportunity for the next 12 to 24 months [16]