Why This Pullback in Microsoft (MSFT) is a Buying Opportunity

In a rather uneventful reaction to the first Fed policy decision of the new year, U.S. stocks ended mainly flat on Wednesday.The Fed kept interest rates unchanged as was widely expected following its two-day policy meeting. Governors Chris Waller and Stephen Miran were the only two to dissent in favor of a 25-basis point cut. Policymakers signaled that they would go “meeting by meeting” in 2026 to determine the interest rate path after three consecutive cuts to end last year.Fed Chair Powell stated that future rate hikes are not the base case for anyone on the FOMC, but with economic growth accelerating as of late, the case for more easing also faces headwinds. Former Cleveland Fed President Loretta Mester said further weakness in the labor market would likely serve as a catalyst for the next rate cut.Treasury Secretary Scott Bessent added on Wednesday that President Trump may announce his pick to replace Fed Chair Powell “in the next week or so.” A dovish pick may bolster the major indexes, which are already trading near all-time highs. The Nasdaq in particular appears to be retaking the lead here and is less than 2% away from its former record.The index bounced over the past few days as investors braced for an onslaught of Big Tech earnings reports this week, led by AI behemoth Microsoft. But trading early Thursday was anything but dull, as the major indexes reacted negatively to Microsoft’s results.Microsoft Stock Falls on Spending Concerns Microsoft reported its fiscal second-quarter 2026 results after the market close on Wednesday, delivering a strong performance that beat expectations on both revenue and profitability amid robust AI-driven demand.The company posted revenue of $81.3 billion, up 17% year-over-year, surpassing the Zacks Consensus Estimate of $80.23 billion. Microsoft Cloud revenue hit $51.5 billion, up 26%, underscoring the segment's role as the primary growth engine. Adjusted earnings of $4.14 per share (up 24%) also beat the consensus forecast ($3.88/share) by nearly 7% and marked another quarter of solid execution.Segment highlights reinforced AI's transformative impact. The Intelligent Cloud division generated $32.9 billion in revenue, up 29% year-over-year, with Azure and other cloud services surging 39%—driven by accelerating AI workloads and capacity expansions. Azure’s growth exceeded analyst projections of around 37-38% growth and marked an acceleration from prior quarters.Productivity and Business Processes contributed $34.1 billion (up 16%), bolstered by Microsoft 365 strengths, while More Personal Computing saw a 3% decline to $14.3 billion amid softer gaming and devices.CEO Satya Nadella emphasized the early stages of AI diffusion, noting Microsoft's AI business already rivals major franchises. Despite the beats, MSFT shares crated approximately 12% in early trading on Thursday, likely reflecting investor scrutiny over elevated capex and potentially tempered near-term margins as Microsoft scales infrastructure aggressively.Bottom LineLooking ahead, these results signal sustained leadership in cloud and AI for Microsoft, with commercial remaining performance obligations providing strong visibility. The company's ability to monetize AI across its stack positions it well for multi-year expansion.The post-earnings pullback could present a buying opportunity if AI adoption continues apace, reinforcing Microsoft's role as a core holding in technology portfolios. The quarter affirms a healthy trajectory, balancing aggressive investment with profitable growth in a dynamic landscape. Microsoft MSFT remains a Zacks Rank #2 (Buy) stock.Overall, Azure's AI momentum remains one of Microsoft's strongest growth stories, contributing significantly to the company's cloud leadership despite heavy upfront investments.Beyond Nvidia: AI's Second Wave Is HereThe AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. Little-known AI firms tackling the world's biggest problems may be more lucrative in the coming months and years.SeeWant 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