Microsoft Stock Jumped 15% After Q4 2026 Earnings. Here’s Where the Stock Could Go

Key Stats for Microsoft Stock

• Current Price: $464.72
• Target Price (Mid): ~$1,106
• Street Target: ~$562
• Potential Total Return: ~138%
• Annualized IRR: ~19% / year

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What Happened?

Microsoft (MSFT) spent most of 2026 as the market’s punching bag, then delivered the single best day any stock has ever had. It reported fiscal fourth-quarter results after the close on July 29. The next session, shares rose 15.51%, the largest one-day increase in market value in stock market history, and added another 3.02% on July 31 to close at $464.72. A stock down more than 20% year-to-date saw one report reset the conversation.

The reason was hard to argue with. Azure grew 43% and crossed $100 billion in annual revenue for the first time, adjusted earnings beat by double digits, and management guided to faster cloud growth ahead. The question now is whether a 15% pop has closed the gap between price and value, or whether room remains to run.

The Beat Was Real, and So Is the Spending

For two quarters, the bear case on Microsoft was not about the business. It was about the bill and whether the AI buildout would ever convert to profit. This quarter made the revenue case, though it did not retire the spending question.

Revenue was $90.0 billion, up 18% year-over-year, ahead of the $87.6 billion analysts expected. Adjusted earnings per share came in at $4.74 against a $4.24 consensus, an 11.81% beat per TIKR’s Beats & Misses data. That reported figure flattered the result: Hood disclosed that discrete items added $0.27 to diluted EPS, chiefly a $3.2 billion gain on Microsoft’s Anthropic investment plus lower retirement-program costs, partly offset by Xbox charges. Strip those out, and the beat shrinks, though Hood said the company still exceeded expectations on revenue, operating income, and EPS without them. Azure grew 43% and pushed Microsoft’s cloud platform past $100 billion in annual revenue, up 41% for the fiscal year. Full-year revenue surpassed $331 billion, and operating income grew 21% to more than $155 billion.

The backlog is where the durability lives. Commercial remaining performance obligation grew 84% to $678 billion, and the entire sequential increase came from customers outside the large AI model companies, countering the idea that Microsoft leans on a handful of frontier-lab deals.

The spending, though, is still climbing. Capital expenditures were $41 billion in the quarter, and free cash flow fell about 23% to $19.6 billion as a result. Microsoft now expects calendar 2026 capex of approximately $175 billion, but that figure reflects an accounting change rather than restraint: CFO Amy Hood said the company is extending the assumed useful life of data centers and office buildings from 15 to 25 years, which shifts some leases out of the reported capex line. Underlying investment expectations are unchanged, and Hood guided capex to grow again in fiscal 2027, with the September quarter alone above $50 billion. Asked how Microsoft protects itself if the industry overbuilds, she pointed to the shape of the spend: “you just slow down what is, in fact, the largest component,” noting that roughly two-thirds of capex now goes to short-lived assets like CPUs and GPUs that can be paced to demand.

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Azure’s Guide Is Faster Than the Quarter It Just Beat

The part of the report that changed minds was the guide. Hood told analysts to expect approximately 45% Azure growth in constant currency for the September quarter, faster than the 43% just posted. Management has flagged demand exceeding capacity for several quarters, and this quarter that constraint became a tailwind, because every efficiency gain gets monetized almost immediately.

The deeper story is strategic. CEO Satya Nadella spent much of the call on model choice, keeping enterprise memory and context separate from any single AI model so customers can swap models freely. “Every model is substitutable,” Nadella said, framing it as both a cost lever and a resilience feature, with over 11,000 models now on the platform. That reach extends to the application layer: Microsoft 365 Copilot crossed 30 million paid seats with net adds more than doubling quarter-over-quarter, while GitHub Copilot reached 50 million users and grew revenue over 60% quarter-over-quarter after a June shift to usage-based billing.

The Two Targets Investors Need to Reconcile

Valuation requires reading the fine print. The Street’s mean target sits around $562, but that figure reflects estimates set before the print and is already stale. In the days after the report, the banks moved fast. Goldman Sachs raised its target to $640 from $610, Wells Fargo and Morgan Stanley moved to $650 and $600, and Citi lifted its target to $600 from $570, having cut it just two weeks earlier. The honest read: the published mean understates where analysts sit now, and even against the fresher $600 to $650 cluster, implied upside from $464.72 is real but not enormous, roughly 30% to 40%.

Microsoft trades at about 23.7x NTM P/E, a premium to several software peers. Oracle trades near 16x forward earnings, Salesforce near 13x, and Adobe under 10x, while ServiceNow sits close to 25x. That premium is defensible for a company posting 18% revenue growth, high-40s operating margins, and a backlog growing 84%, but it does mean the stock is no longer the multi-year-low bargain it was in the spring.

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TIKR Advanced Model Analysis

• Current Price: $464.72
• Target Price (Mid): ~$1,106
• Potential Total Return: ~138%
• Annualized IRR: ~19% / year

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Using TIKR’s mid-case assumptions, the model values Microsoft at around $1,106 by mid-2031, implying roughly 138% total return over about 4.9 years, or around 19% annualized.

Two revenue drivers carry the number. The first is Azure and the broader cloud platform, growing in the mid-teens as backlog converts and consumption-based AI pricing expands the market. The second is the AI application layer, Copilot across Microsoft 365, GitHub, and security, where the shift from per-seat to per-seat-plus-usage lifts revenue per customer. The model uses a mid-case revenue CAGR of around 15% and assumes net income margin expands toward roughly 40% as AI infrastructure efficiency improves, the primary margin driver.

Looking further out, TIKR’s scenario band runs through the mid-2030s: a low case near $1,334, a mid case near $1,823, and a high case near $2,419. The upside comes from AI monetization compounding faster than modeled while margins hold in the low-40s. The downside is the capex cycle outrunning revenue and the multiple giving back its recent gains. The biggest risk remains the pace of capex against the timing of returns; the debate this quarter quieted but did not settle.

Conclusion

The next real test is Microsoft’s fiscal Q1 2027 report, due after the close on October 27. Two numbers decide whether this re-rating holds. The first is Azure constant-currency growth against Hood’s guided 45%; a print at or above that line shows demand still outrunning the buildout. The second is free cash flow, which fell about 23% this quarter on record capex and, with spending guided higher again in fiscal 2027, needs to show cloud revenue is outpacing the bill. Strong Azure growth alongside stabilizing free cash flow confirms the cycle is turning spend into cash. Cooling growth against still-climbing capex would tell that the market’s historic one-day verdict got ahead of the fundamentals.

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Should You Invest in Microsoft?

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Disclaimer:

Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!