Microsoft Analyst Says ‘This Is Everything We Could Have Asked For’ After Q1 Beat: Soft Guidance Throws Wrench In Stock Rally

• Azure's constant-currency revenue growth was 39%.
• On Capex, CFO Amy Hood said, “Total spend will increase sequentially, and we now expect the FY'26 growth rate to be higher than FY'25.”
• Microsoft stock has gained 29% year to date, outpacing the broader market and the tech sector.

Microsoft Corp. (MSFT) stock slipped nearly 4% in Wednesday’s extended trading after the software giant’s second-quarter revenue guidance, which was in line with Wall Street’s expectations, disappointed investors. 

Deepwater Asset Management’s Gene Munster, however, said, “The big picture remains intact.” 

The company entered the $4 trillion market-capitalization club on Monday amid a series of positive artificial intelligence (AI) tidings from companies, including Nvidia (NVDA). Microsoft stock has gained 29% year to date, outpacing the broader market and the tech sector.

Analyst Laud MSFT’s Q1 Print

Microsoft analysts were largely bullish, while traders bid the stock down in the after-hours session. While appearing on Yahoo Finance, RBC Capital Markets analyst Rishi Jaluria said, “This is everything we could've asked for.” He underscored the 39% constant-currency revenue growth in Azure, the broad-based beat across every single metric, and the company’s continued cost discipline. “If the stock is down tomorrow morning, I would be a buyer.”

Munster said Microsoft provided second-quarter Azure constant-currency growth guidance of 37%, slightly above the 36.5% consensus estimate. He noted that in the past, the upside relative to the consensus was 2-3 percentage points. “People wanted a little bit more,” he added.

On the earnings call, CFO Amy Hood said second-quarter revenue will likely be $79.5 billion to $80.6 billion compared to the Fiscal.ai-compiled consensus of $80.10 billion, according to a transcript of the call made available by Koyfin. The executive said the operating margin will be flat year over year (YoY), in line with historical seasonality.

While refraining from giving capital expenditure (Capex) guidance in dollar terms, Hood said Microsoft was increasing its spend on GPUs and CPUs due to accelerating demand and a growing remaining performance obligation (RPO) balance. “Therefore, total spend will increase sequentially, and we now expect the FY'26 growth rate to be higher than FY'25,” she said. 

Munster said he estimates that capex will increase by 45%-50%. “The overall takeaway is that they are fully bought into the opportunity around AI [artificial intelligence] and may want to continue to invest in infrastructure, part for Azure, part for getting a big AI brain that they love third parties to leverage.” 

In a statement, Chairman and CEO Satya Nadella said, “Our planet-scale cloud and AI factory, together with Copilots across high-value domains, is driving broad diffusion and real-world impact,” adding that “It’s why we continue to increase our investments in AI across both capital and talent to meet the massive opportunity ahead.”

Microsoft’s Q1 Earnings Snapshot

CFO Amy Hood said, “We delivered a strong start to the fiscal year, exceeding expectations across revenue, operating income, and earnings per share.” 

Here are MSFT’s headline Q1 metrics:

-GAAP earnings per share (EPS): $3.66 (up 13% YoY) Vs. $3.55 consensus

-Revenue: $77.7B (up 18.4%) Vs. $75.39B consensus

Microsoft noted that its adjusted EPS climbed 23% to $4.13. Azure and cloud services revenue climbed 40% on a reported basis and 39% on a constant-currency basis. Intelligent Cloud revenue, which includes Azure, rose 28% to $30.9 billion, and overall Microsoft Cloud revenue was up 26% at $49.1 billion. Meanwhile, More Personal Computing revenue rose 4% to $13.8 billion.

How Retail Feels About MSFT’s Q1 Print

On Stocktwits, Microsoft stock was among the top five trending equity tickers by late Wednesday. Retail sentiment toward the stock improved a few notches within the ‘extremely bullish’ territory, and the message volume stayed ‘extremely high.’

A bullish watcher predicted a stock rebound, banking on potential analysts’ price target revisions and ratings upgrades.

Another user shrugged off the post-earnings decline as a “one-day” move and predicted the stock would run toward $600. On Wednesday, the stock settled at $541.55.

The average analyst’s price target for Microsoft stock is $621.07, according to Koyfin, implying nearly 15% upside from its closing price on Tuesday.

For updates and corrections, email newsroom[at]stocktwits[dot]com.

Read Next: Alphabet Crushes Q3: Stock Soars After-Hours As Retail Traders Hail Google Parent As Next $4 Trillion Giant

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