Is Microsoft (MSFT) a 'Buy' Ahead of Upcoming Earnings Announcement?

AI leader Microsoft is set to report fiscal Q4 earnings results on Wednesday after the closing bell. Microsoft, a Zacks Rank #2 (Buy), has handily outperformed the market year-to-date with a better than 22% return. But with markets looking extended in the short-term, is the stock a buy heading into the release?Find the latest EPS estimates and surprises on Zacks Earnings Calendar.Wall Street remains bullish on the company’s bottom line. Analysts are expecting Microsoft to deliver quarterly earnings of $3.35 per share, up 13.6% from the $2.95 recorded a year ago. The Zacks Consensus Estimate for revenues is pegged at $73.71 billion, which would mark a 13.9% improvement versus the same quarter in the prior year. Estimates have remained stable over the past 60 days.Adding to investor confidence is Microsoft’s impressive track record of beating expectations. Microsoft has averaged a 5.2% positive earnings surprise over the past four quarters. The tech giant has exceeded earnings estimates for 11 consecutive quarters.The software behemoth is expected to have benefited from sustained Microsoft 365 Commercial growth. In addition, Microsoft’s cloud offering is a key growth catalyst. Azure remains an enterprise favorite, with revenue growth projected between 34% and 35% in constant currency terms. The platform has rapidly become the infrastructure of choice for AI workloads.Another figure to watch will be anticipated capital expenditures. Google-parent Alphabet, which raised its own capex forecast last week as it invests more heavily in AI infrastructure, set the tone for Big Tech this quarter. While the higher-than-expected capex number sparked short-lived concerns, the underlying strength of the company’s earnings helped support shares following the announcement.Perhaps we will see a similar trend this week as Microsoft MSFT could follow cloud computing competitor Alphabet's lead. While both companies left their capex forecasts unchanged when they reported quarterly results a few months ago, they appear to be feeling more confident about boosting AI spending now that some of the uncertainty has been lifted by trade agreements. Over the past year, Microsoft has invested heavily in data center expansion, allocating $80 billion in capital spending for fiscal 2025.Microsoft CEO Satya Nadella recently addressed what he called an issue that was "weighing heavily" on him: the company’s ongoing layoffs. Over 15,000 Microsoft employees have been let go this year alone, a transition that Nadella described as a “necessary but painful” restructuring amid advancements in AI. Recent headcount reductions may positively impact the fiscal year 2026 margin outlook.Despite the layoffs, market participants have applauded Microsoft’s leaner approach. The second-largest component of the S&P 500 by weight, the stock has broken out to all-time highs ahead of the announcement. The sustained climb reflects Microsoft’s solid growth led by significant demand for its AI and cloud offerings.Still, the bar for earnings is set high, so Microsoft will need to deliver a strong report to keep its momentum going. The stock is currently trading at over 34 times forward earnings, well above the industry average. But the company’s dominant position and future growth prospects may support the lofty valuation.#1 Semiconductor Stock to Buy (Not NVDA)The incredible demand for data is fueling the market's next digital gold rush. As data centers continue to be built and constantly upgraded, the companies that provide the hardware for these behemoths will become the NVIDIAs of tomorrow.One under-the-radar chipmaker is uniquely positioned to take advantage of the next growth stage of this market. It specializes in semiconductor products that titans like NVIDIA don't build. It's just beginning to enter the spotlight, which is exactly where you want to be.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Microsoft Corporation (MSFT): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks