Microsoft (MSFT) Q3 2025 Earnings Preview: Azure Momentum and the High-Stakes CapEx Narrative

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Microsoft Corporation ($MSFT$) is scheduled to report its fiscal year 2026 first-quarter earnings on Wednesday, October 29, after the market closes. This event is seen as a key indicator for how quickly companies are adopting Artificial Intelligence (AI) and the overall health of the technology sector.

Analysts widely expect Microsoft to beat profit forecasts, extending its winning streak, primarily driven by strong demand for its cloud services and AI development tools.

The main focus for investors is the Intelligent Cloud segment, particularly the Azure platform, and the company's massive investments (CapEx) in new infrastructure to maintain its AI leadership. Although the stock has outperformed the market this year, rising 23%, its recent climb has slowed due to investor concern over the accelerating capital expenditure required for AI.

To truly satisfy the market and justify its high forward price-to-earnings (P/E) multiple, Microsoft will need to not only meet revenue expectations but also issue optimistic guidance for its future performance.

Analysts predict Microsoft's earnings per share (EPS) will be $3.66, and they expect the company's total revenue to hit $74.96 billion. This revenue figure represents a projected 14.3% increase from the previous year.

These results are being reported while the company's share price is already up 23% since the beginning of the year, which means the stock is performing better than the overall market.

The biggest factor determining how much Microsoft is worth is the growth of its Azure cloud business. The consensus forecasts predict Azure growth will be 38%, with some even hoping for 39%. This is already a high goal, but analysts at Wedbush actually thought Microsoft's own internal forecast of 37% Azure growth was "relatively cautious."

A key concern for major investors right now is a rumored change in the AI infrastructure market. Some believe Microsoft's recent slower stock performance is partly because competitors, like Oracle, are gaining ground. For example, Oracle recently saw a big increase in orders from OpenAI (a company Microsoft heavily supports).

If Microsoft manages to hit the high 38% Azure target, it will signal that its own AI products, like Copilot and the adoption of Microsoft 365 by businesses, are strong enough to overcome any competition or loss of big infrastructure deals.

However, if they miss this target, it will confirm worries that competitors are hurting them and that they are not winning new AI business as quickly as they should be.

Market participants are no longer just looking at how fast Microsoft's total sales are growing; they are now intensely focused on how efficiently the company is spending money to achieve that growth. Because of this, Microsoft's spending on its massive infrastructure is the most closely watched number that isn't about revenue.

The Scale of Capital Expenditure

To keep up with the huge need for advanced AI computing, Microsoft estimated it would spend a phenomenal $30 billion on infrastructure in just this quarter (Q1 FY2026). Analysts at Bank of America think Microsoft's total infrastructure spending for the entire fiscal year 2026 will hit $125 billion, which is $10 billion more than what most of Wall Street expects.

For market participants, when Microsoft increases its spending projections, it's actually seen as a good sign. The thinking is that if they're spending that much, it must mean customer demand is so overwhelming that the company is essentially guaranteeing future revenue. This massive building spree also helps companies that supply chips, especially Nvidia.

However, this high spending creates a problem: it proves demand is strong, but it also squeezes the company's profits in the short term. The market needs proof that Microsoft is making money back faster, specifically through the quick adoption of products like Copilot to justify this huge investment.

Management must clearly explain when the money spent this quarter is expected to turn into faster revenue growth. If they can't show a quick return on investment, the stock's high valuation could start to drop.

Microsoft's stock price after the earnings report will be strongly affected by its strategy and a few remaining uncertainties.

Key Strategic Issues

The partnership with OpenAI continues to be a major worry for the stock, creating a "stock overhang." Key details are still unclear, such as Microsoft's rights to OpenAI's technology (intellectual property or IP) and the official structure of its investment in OpenAI's for-profit arm.

To reduce its risk, Microsoft has wisely started using a second major AI model, Anthropic's Claude, alongside OpenAI's technology in its Copilot products. This is a crucial move to offer better options to business customers and to avoid relying on just one partner. Investors will be listening closely for information on how well companies are adopting this new, mixed AI strategy.

Stock Price and Valuation Outlook

Microsoft shares have recently been stable, or "consolidating," around the $523 level after falling from their peak of $554 late this summer.

Technically, the stock is in good shape but is easily affected by new information, especially negative regulatory news, like recent challenges from Australia.

The crucial level where buyers are expected to step in is between $512 and $516. To move higher, the stock must decisively break above $530 to build momentum toward $541 and a potential retest of the record high at $554.

Because the stock's current valuation is so high, the earnings report is an all-or-nothing event.

A big win, along with very strong forecasts for Azure revenue and spending (CapEx) in the next quarter, is needed to break the $530 resistance and push the stock toward the highest analyst price targets (up to $675).

On the other hand, any disappointment in Azure growth or unclear answers about when its huge spending will turn into revenue could cause the stock to drop toward the critical $512 support level.

Microsoft Daily Chart, October 27, 2025

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