Betting on the Cloud: What Wall Street Expects from Microsoft's Earnings Report

Microsoft’s financial results for the first quarter of fiscal year 2027, which will be released on October 28 after the U.S. market closes, will give Wall Street a clearer picture of how effectively the tech giant is monetizing its investments in artificial intelligence, according to Barron’s. For the first time, the company will disclose revenue from its Azure cloud platform in dollars directly in its quarterly report; previously, it had only reported its growth rate.

During trading on October 28, Microsoft shares remained virtually unchanged—they rose 0.3% in the first few minutes of trading but then gave up those gains and closed slightly lower, down 0.2%.

— Earnings, revenue, and free cash flow. In the first fiscal quarter, Microsoft’s adjusted earnings per share are expected to rise 14% year-over-year to $4.71, while revenue for the same period is expected to rise 16.7% to $90.62 billion, according to forecasts from analysts surveyed by FactSet. Capital expenditures are expected to increase by $10 billion compared to the previous quarter, reaching $51 billion.

Such large investments have significantly depleted Microsoft’s free cash flow, Barron’s notes: analysts estimate that it will decline by 69% compared with the same period last year—from $25.7 billion to $7.99 billion.

— Cloud revenue. Microsoft and other hyperscalers are investing billions of dollars in AI, expecting high returns as demand for this technology grows. One of the key metrics Wall Street uses to assess the effectiveness of these investments is the growth of cloud revenue. For Microsoft, this means revenue growth from the Azure platform, where the company generates revenue by leasing computing power, storage, and other AI infrastructure to customers.

Wall Street expects Azure’s revenue growth to accelerate to 44.3% year-over-year, up from 43% in the previous quarter, and for revenue to rise to $32.3 billion, up from $29.4 billion in the prior quarter. This is important for investors: given Microsoft’s massive spending, they need confirmation of sustained demand for cloud-based AI services. The company itself had forecast Azure revenue growth of 44–45% in constant currency for the first quarter.

In September, Microsoft announced a change to its financial reporting structure: the number of segments will be reduced from three to two, and the former Intelligent Cloud segment will be incorporated into the new Agents and Infra segment. At that time, the company also disclosed Azure’s quarterly revenue in dollars for prior periods for the first time—previously, it had only reported the platform’s growth rate alongside other cloud services. The upcoming report will be the first in which this metric is published immediately following the end of the quarter.

According to Microsoft’s restated historical data, Azure’s revenue for fiscal year 2025 totaled $72.61 billion, and by the end of fiscal year 2026, it had grown by approximately 40% and surpassed the $100 billion mark for the first time, reaching $101.94 billion, according to MarketWatch.

“When it comes to the financial reports of mega-cap technology companies, ‘the focus is not so much on the actual financial results as on whether capital expenditures on AI development will lead to sustainable revenue growth for these companies,’” said Chris Brigati, chief investment officer at SWBC, ahead of the report’s release.

“We view the forecast for accelerated [Azure growth] in the first two quarters of fiscal year 2027 as evidence of continued confidence: Microsoft will be able to meet and exceed its first-quarter guidance,” wrote Jackson Ader, an analyst at KeyBanc Capital Markets, last week. “The commissioning of 31 data centers in the fourth quarter (compared to 57 in the first three quarters) is also a significant expansion of capacity that we believe will drive growth,” he added.

Since the start of the year, Microsoft shares have risen 10%, slightly lagging behind the S&P 500 index, which rose nearly 13% over the same period. Ader rates the company’s stock as “Overweight” with a target price of $600. This implies a 13% increase from the closing price on October 27.

According to MarketWatch, most analysts view Microsoft’s stock positively and recommend buying it (Buy). Fifty-seven out of 60 experts hold this view. The rest recommend “holding” (Hold). There are no “sell” recommendations for the IT giant’s stock.

In addition to Microsoft, Alphabet will report its financial results on Wednesday after the market closes. The earnings reports from both companies could influence broader market trends not only by shifting investor sentiment but also for structural reasons: the combined weight of these two issuers in the S&P 500 index is 9.5%, notes MarketWatch. Judging by option prices, the market is already pricing in significant price fluctuations for both tech giants through the end of the week. According to MarketWatch’s calculations based on FactSet data, the expected price movement for Microsoft shares over the next three trading sessions is 4.3% in either direction, while that for Alphabet shares is 5.1%.

This article was AI-translated and verified by a human editor