Key Points
-
Microsoft stock dropped some 12% on Thursday after the tech giant released its Q2 earnings.
-
Wall Street analysts still rate Microsoft as a consensus buy, giving it a median price target that suggests 47% growth.
-
Here’s why that matters to investors.
- 10 stocks we like better than Microsoft ›
Microsoft (NASDAQ: MSFT) stock was in free fall on Thursday, dropping more than 12% despite posting earnings Wednesday afternoon that appeared to be strong on the top and bottom lines.
The revenue and earnings numbers beat estimates in blowout fashion. The technology giant saw revenue climb 17% to $81.3 billion, while net income jumped 60% to $38.5 billion, or $5.16 per share, which blew away estimates of $3.92 per share.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
Image source: Getty Images.
Microsoft’s cash cow, its cloud computing business, crossed $50 billion in revenue for the first time, up 26% year over year. Its intelligent cloud business, which primarily encompasses its artificial intelligence (AI) cloud business, including Azure, jumped 29% to $32.9 billion. Azure, the largest part of the intelligent cloud pie and the growth driver, saw revenue increase 39% in the quarter.
Again, these look like good numbers, but Microsoft investors saw some perhaps troubling trends that sparked the sell-off.
Slowing cloud growth, rising AI spending
Two trends stuck out for investors that caused the sell-off. One, Azure cloud growth declined slightly, from 40% the previous quarter to 39% this quarter. It’s certainly a small drop, but when combined with anticipated growth for Azure of 37% to 38% in the third fiscal quarter, it starts to form a trend.
At the same time, Microsoft reported $37.5 billion in capital expenditures (capex) in the quarter — a record for the company and 66% higher than the same quarter a year ago.
On theearnings call CFO Amy Hood said about two-thirds of the capex was spent primarily on GPUs and CPUs to keep up with AI demand. But that raised a red flag for many investors questioning the lack of bang for the AI buck with Azure growth slowing and capex spending rising.
So what does this mean for Microsoft stock?
What will Microsoft stock be worth in a year?
Coming into the year, Wall Street analysts were more bullish on Microsoft than any other S&P 500 stock, with 97% rating Microsoft as a buy.
While Microsoft stock got a slew of price target downgrades after the earnings report, all of the analysts maintained their buy ratings.
Prior to the earnings release, Microsoft had a median price target of $625 per share, which would suggest a 12-month return of 47%.
While the latest upgrades, which ranged from about $650 per share from Morgan Stanley to around $550 per share from JPMorgan Chase, might bring that down a bit, it would still likely be in the $600-per-share range, which would still be 41% growth in a year.
Why it matters
This matters for a couple of key reasons. First, it means that despite the increase in AI spending and concerns about AI cloud growth, Wall Street analysts remain very bullish on Microsoft, with almost all who cover it rating the stock as a buy.
Second, the 41% to 47% expected return for Microsoft stock over the next 12 months makes it the most promising of all the “Magnificent Seven” stocks.
No other Magnificent Seven stock has a higher expected return over the next year, based on the median price target. The next closest is Nvidia with a projected 32% gain.
And today’s dip might provide a good opportunity to scoop up some shares.
Should you buy stock in Microsoft right now?
Before you buy stock in Microsoft, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Microsoft wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $450,256!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,171,666!*
Now, it’s worth noting Stock Advisor’s total average return is 942% — a market-crushing outperformance compared to 196% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
See the 10 stocks »
*Stock Advisor returns as of February 2, 2026.
JPMorgan Chase is an advertising partner of Motley Fool Money. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
