Microsoft Earnings Preview: Morgan Stanley Bullish, AI Cloud in Focus

This week is the busiest of earnings season, with 158 S&P 500 companies set to report. Tech giant Microsoft (MSFT) is a major focus. As of the close on Friday, July 24, MSFT was at $381.70, up 0.03% from the prior close of $381.58. The stock opened at $387.05, hit a high of $389.03, and a low of $380.65. With markets closed for the weekend, the stock is frozen at that level with no pre-market or intraday movement. Microsoft reports fiscal Q4 2026 results after the bell on Tuesday, July 28, with the market closely watching Azure cloud growth and AI-related capex plans.^CNBC

Morgan Stanley Bullish Ahead of Earnings, AI Cloud in Focus

In a July 25 note, Morgan Stanley listed Microsoft as a stock to buy before its earnings, with an Overweight rating. The analysts pointed to Microsoft's strong software moat, ample cash reserves, and strategic investment in OpenAI as key advantages in the AI race.^CNBC Morgan Stanley isn't alone. In a July 24 article, Seeking Alpha analyst Jack Bowman reiterated Microsoft as his "top AI winner," arguing that the company's aggressive capex and cloud investments are paying off through rapid growth in its Intelligent Cloud segment, boosting operating income and margins.^{Seeking Alpha}

Bowman also warned that negative free cash flow and capex concerns could trigger a short-term selloff after earnings, but he sees that as a buying opportunity. He emphasized that Microsoft's long-term narrative remains intact — cloud revenue growth, strong margins, and resilience to AI bubble risks will support its continued leadership.^{Seeking Alpha}

Earnings Season Solid, But Megacap Pressure Mounts

According to CNBC citing FactSet, about 27% of S&P 500 companies have reported Q2 results so far, with 82% beating Wall Street estimates.^CNBC However, disappointing results from Tesla and Alphabet last week weighed on the broader market. The S&P 500 fell 0.6% for the week, its second straight weekly decline.^CNBC

Tesla reported Q2 adjusted EPS of $0.33 on July 23, well below the LSEG analyst consensus of $0.51, though revenue of $28.24 billion topped the $25.71 billion estimate.^CNBC Multiple analysts cut their price targets on Tesla after the miss. Alphabet's results also disappointed, fueling investor concerns that tech valuations have run too high.

Key Metrics: Azure Growth and Capex

Market focus for Microsoft's earnings is on two main areas: Azure cloud revenue growth and the company's capex plans for AI infrastructure. Morgan Stanley highlighted that Microsoft's cloud investments are generating solid returns through rapid Intelligent Cloud growth.^CNBC Seeking Alpha's Bowman noted that while Microsoft's aggressive capex strategy pressures free cash flow in the near term, it is a necessary investment to support long-term AI and cloud growth.^{Seeking Alpha}

Microsoft's strategic investment in OpenAI is also a key focus. Bowman believes the partnership gives Microsoft a first-mover advantage in AI, but also introduces financial risks tied to OpenAI.^{Seeking Alpha}

Earnings Wave: Apple, Amazon, Meta Next

This is the busiest week of earnings season. Beyond Microsoft, Apple, Amazon, and Meta Platforms are all set to report.^CNBC In its July 25 note, Morgan Stanley also listed Apple as a stock to buy before its earnings, with an Overweight rating.^CNBC

Last week's misses from Tesla and Alphabet have put pressure on the tech sector, but analysts generally expect Microsoft to deliver a relatively solid report, given its strength in enterprise software and cloud services. Still, questions about AI investment returns persist, and Microsoft's capex guidance will be the key swing factor for the stock's post-earnings reaction.

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