StockUp raised Microsoft's ($MSFT) End-of-Year (EOY) price target from $504.56 to $510.42 due to a confluence of robust financial performance, accelerating cloud and AI momentum, and a bullish analyst sentiment despite significant capital expenditures.
Strong Fiscal Q3 2026 Earnings
Microsoft reported strong fiscal Q3 2026 earnings, with revenue rising 18% to $82.9 billion, surpassing analyst expectations of $81.44 billion. Earnings per share also jumped 23% to $4.27, exceeding the anticipated $4.06. A key driver behind this outperformance was the accelerating growth in Azure, Microsoft's cloud computing division, which saw a 40% year-over-year increase, exceeding the company's own forecasts and the previous quarter's 39% growth. This continued strength in Azure confirms robust demand for AI infrastructure and large Azure contracts are compounding quarter after quarter, providing long-term revenue visibility.
AI Monetization and Capital Expenditures
Furthermore, Microsoft's AI business has reached an annual revenue run rate of $37 billion, marking a 123% increase from a year ago, with Microsoft 365 Copilot exceeding 20 million paid seats. The company's aggressive investments in AI and cloud infrastructure, with projected capital expenditures of approximately $190 billion for calendar year 2026, are viewed as necessary to sustain its competitive advantage and capitalize on the massive opportunity ahead. While these substantial investments put pressure on cloud margins in the short term, they are expected to enable accelerated Azure growth in the second half of 2026 as new AI capacity comes online, leading to operating leverage.
Bullish Analyst Sentiment
Analyst sentiment remains predominantly bullish, with many reaffirming "Strong Buy" or "Buy" ratings and average price targets in the $589-$592 range, significantly above the current trading levels. Some analysts have specifically upgraded their price targets, citing the underestimation of Azure's growth prospects and the significant impact of AI monetization.
The broader technology sector is also experiencing extraordinary earnings growth, contributing nearly half of the S&P 500's expected earnings growth, with major tech and AI infrastructure companies driving much of the upside. This favorable market environment, coupled with Microsoft's strong fundamentals and leadership in key growth areas, supports the upward revision of its EOY price target.