Microsoft stock down 30% from peak ahead of July 29 earnings

Microsoft reports fiscal fourth-quarter earnings on July 29, with Azure growth and capital spending guidance set to determine whether the stock can recover from a 1-year low.

"Azure year-over-year growth at or above 39-40% is needed for the stock to work," Bank of America analyst Tal Liani, who has a Buy rating and $500 price target on the software giant, said in a July 17 preview note. "A miss could intensify concerns around AI ROI."

Microsoft's stock has shed roughly 20% of its value this year, trading at about 19 times Liani's 2027 earnings estimate — well below its five-year average multiple of 29 times. The company's total infrastructure investment for fiscal 2026 is expected to reach roughly $190 billion, according to CNBC, as Microsoft builds out AI computing capacity to meet surging enterprise demand. Azure revenue grew 40% year over year last quarter, and management guided for high-30s to 40% growth in the fiscal fourth quarter.

A miss on Azure would reignite the debate over whether Microsoft's massive AI spending is producing real financial returns, while a beat — supported by new computing capacity coming online at the Fairwater facility in Wisconsin — could start closing the valuation gap. About 95% of analysts covering the stock have a Buy rating, with a median price target above Bank of America's $500 target, according to TheStreet.

Three metrics to watch on July 29

Azure growth is the single most important number. Liani models growth in the middle of Microsoft's guided range, and any result at or above 39-40% would confirm that new data center capacity is converting demand into recognized revenue. Microsoft's commercial backlog, the contracted business customers have signed for but not yet received, nearly doubled over the past year to a level representing years of potential revenue.

Capital expenditure guidance for fiscal 2027 may matter more than any single revenue line. Investors already know Microsoft spent heavily in fiscal 2026. What they do not know is whether that spending will moderate or accelerate into next year. Management's commentary on the capex outlook will test whether the market's patience with near-term cash generation sacrifice has limits.

Copilot adoption is the third pillar. Microsoft's AI assistant crossed 20 million paid seats last quarter after adding 5 million users sequentially, and AI annual recurring revenue has more than doubled from a year ago. The company also launched a higher-priced enterprise AI suite in May 2026, and early adoption data in the Q4 print would signal that AI is becoming a durable revenue stream rather than an experimental feature.

What this means for investors

The July 29 report is the clearest test yet of whether the AI investment cycle is producing real financial returns for hyperscalers. If Azure maintains its growth pace, Copilot adoption keeps building, and management provides credible guidance on when spending starts moderating, Microsoft has a path toward recovery from its year-to-date lows. If any of those pieces disappoint, the skeptics who have been shorting large-cap software all year get more ammunition.

This article is for informational purposes only and does not constitute investment advice.