ETFs to Buy as Microsoft's Shares Slump Despite Q2 Earnings Beat

Core Insights - Microsoft shares fell 10% despite exceeding analysts' expectations for Q2 fiscal 2026 earnings and revenues, primarily due to higher-than-expected capital expenditures and slowing cloud growth expectations [1][10] Financial Performance - In Q2, Microsoft's adjusted earnings per share (EPS) surpassed the Zacks Consensus Estimate by 6.7%, and revenues exceeded the consensus by 1.3%, with both metrics showing double-digit year-over-year growth [5] - Revenue from Azure and other cloud services grew by 39%, while Microsoft 365 Commercial products and cloud services revenues increased by 16%, and Microsoft 365 Consumer products and services revenue rose by 27% [6] - LinkedIn revenues increased by 11% due to growth in Marketing Solutions [6] Future Outlook - Microsoft anticipates revenues between $80.65 billion and $81.75 billion for Q3, exceeding the Zacks Consensus Estimate of $80.47 billion, driven by strong growth in commercial businesses [7] - The company expects a decline in Microsoft Cloud gross margin percentage to approximately 65% year-over-year due to ongoing investments in AI, and Xbox content and services revenues are projected to decline in the mid-single digits in Q3 [8] Analyst Reactions - JPMorgan analyst Mark Murphy maintained an Overweight rating but reduced the price target from $575 to $550, citing concerns over CPU supply constraints affecting Azure growth [9] - Goldman Sachs analyst Gabriela Borges maintained a Buy rating and lowered the price target from $655 to $600 [11] Investment Opportunities - Investors optimistic about Microsoft's cloud growth may consider ETFs with significant exposure to Microsoft, such as: - iShares Dow Jones US Technology ETF (IYW), which has $21.06 billion in net assets and a 12.32% allocation to Microsoft, with a 25.9% increase over the past year [12][13] - iShares Top 20 U.S. Stocks ETF (TOPT), with $486.3 million in net assets and an 11.23% allocation to Microsoft, showing a 17% increase over the past year [14][15] - Select Sector SPDR Technology ETF (XLK), with $94.07 billion in assets and an 11.38% allocation to Microsoft, which has rallied 26.5% over the past year [16][17] - Vanguard Information Technology ETF (VGT), with $112.8 billion in net assets and a 12.19% allocation to Microsoft, which has soared 22.8% over the past year [18][19]