Microsoft is devoting significant investments to AI and cloud infrastructure to compete with other technology firms.
Microsoft’s gaming segment grew 44% last year, providing significant revenue to complement its software, cloud and AI business lines.
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Actions of Microsoft(NASDAQ:MSFT) lost 0.27% in the last five trading sessions after losing 1.58% in the previous five. This brings MSFT’s year-to-date gain to 14.27%, including a nearly 35% gain from its April 8 low.
When the Magnificent Seven member reported Q1 2026 earnings on Oct. 29, the stock fell despite beating EPS and revenue. The company reported earnings of $3.72 per share, compared to analysts’ expectations of $3.67, and quarterly revenue of $77.67 billion, compared to analysts’ expectations of $75.33 billion.
On October 1st, the company announced that it was increasing its Xbox Game Pass subscription by 50%. In its most recent fiscal year, Microsoft saw more than 8 percent of its revenue come from its gaming segment, which now boasts 50 million monthly active subscribers and nearly $5 billion in annual revenue.
Microsoft’s decision in May to lay off 6,000 employees — or 3 percent of its workforce — signals that the tech giant is serious about cost discipline amid economic uncertainty. With analysts tracking cloud-backed demand, 24/7 Wall St. conducted an analysis to explore whether Microsoft can maintain its upward trajectory and generate long-term growth.
Microsoft faces challenges but remains a top investment due to its AI and cloud dominance. Third-quarter results showed strong demand for its Intelligent Cloud segment, although tariff risks persist. Microsoft’s $80 billion cash hoard is fueling its $80 billion investments in cloud infrastructure and AI, with more than half in the U.S.
Microsoft 365 Copilot, adopted by more than 70% of Fortune 500 firms, drives productivity revenue, positioning Microsoft to capture the 37% compound annual growth in the AI market predicted through 2030. Similarly, partnerships with Oracle(NYSE:ORCL) for multi-cloud solutions increase their competitiveness against Amazonhis (NASDAQ:AMZN) AWS.
In June, it was reported that the company would expand its AI and cloud investments in Switzerland, committing $400 million to expand its data center infrastructure in the European nation. The additional capacity is expected to support more than 50,000 current customers and expand the availability of AI services to more sectors, including healthcare, government finance. Microsoft is capitalizing on the momentum of its Azure platform as revenue grew 39% in Q4 FY25 due to AI services.
When Microsoft last reported earnings, EPS was up 7.40% and revenue was up 2.37%. EPS marked the 15th time in the last 16 quarters that the company beat estimates, with EPS coming in at $3.46 versus the consensus forecast of $3.20.
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Microsoft reported gross profit of $49.8 billion, up 14% year over year, with gross margins of 68%, driven by strong cloud and AI demand. The company has committed to continue spending on capital expenditures, focusing on expanding its AI data center to meet the needs of the enterprise. Analysts expect the company’s investments to remain high to support the growth of Microsoft’s cloud infrastructure.
Tariff uncertainties pose risks, even with the pause in China, as supply chain cost pressures for server hardware are not removed. Microsoft’s operating income of $32 billion was tempered by a 5% increase in operating expenses, reflecting heavy investments in AI research and development. Despite no revenue from its $13 billion OpenAI stake, Microsoft reported $42.4 billion in Microsoft Cloud revenue, up 20 percent year over year.
Beyond the cloud, Microsoft’s gaming segment grew 44%, with 43 points of the gain coming from its acquisition of Activision, but supported by Xbox content and Bethesda’s Starfield expansion. A partnership with Oracle for multicloud solutions strengthens its enterprise offerings, further diversifying its revenue. Wall Street expects revenue of $73.8 billion in the fourth quarter, up 14%, thanks to Microsoft’s AI and cloud push.
Broadly, 34 Wall Street analysts remain bullish, with 32 analysts covering MSFT assigning a “Buy” rating, two assigning a “Hold” rating and none assigning a “Sell” rating. Overall, the stock receives a “Strong Buy” consensus rating. Wall Street’s price targets span a significant range, from $550 per share on the low end to $700 per share on the high end. The average one year price target for MSFT is $632.22, which represents a potential upside of 32.17% from today’s share price.
Institutional ownership is currently 73.73%, with three of the four largest buyout firms – Vanguard, BlackRock and State Street – collectively owning 1.570 billion shares of Microsoft.
Estimate
Target price
% change from current price
Low
$500
4.53%
Median
$632.22
32.17%
High
$700
46.34%
Microsoft Azure’s strong revenue growth positions it for cloud and AI market gains. However, the $20 billion quarterly investment and tariff risks call for caution. Its $80 billion cash reserve and Oracle partnership provide stability, making MSFT stock a buy for growth investors, even if valuation concerns persist.
24/7 Wall St.The year-end target price for Microsoft is $563.64, which implies a potential upside of 17.83% from the current stock price. This conservative target reflects Azure’s strength and FY26 Q1 revenue guidance, balanced with the need for higher capital expenditures and potential supply chain disruptions, positioning it at a realistic estimate of its leading presence in the space.
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