Microsoft (MSFT, Financial) is set to report its fiscal Q3 earnings next Wednesday, and analysts at Evercore ISI believe the company has a chance to reset expectations—particularly around Azure—and potentially pave the way for a rebound.
The firm, led by analyst Kirk Materne, said Microsoft had previously set a high bar by guiding toward acceleration in Azure growth for the second half of the fiscal year. Now, with the macro environment tightening, Evercore expects the company will use this quarter to lower those expectations and reframe the narrative.
"AI-related demand should remain solid, thanks in part to ChatGPT, but the non-AI parts of Azure could face pressure,” Materne said in a note to clients. He added that Azure guidance in the high 20% range, versus the Street's current expectation in the low 30% range, would be seen as more achievable and could help shift investor sentiment more favorably toward fiscal Q4.
While trimming cloud growth guidance could cause short-term stock volatility, Evercore sees this as a buying opportunity for longer-term holders. The firm believes Microsoft's AI focus is maturing into enterprise adoption, and that this will slow the pace of capital expenditures tied to cloud infrastructure.
Materne also noted that capex growth could begin aligning more closely with actual Azure expansion, setting the stage for a rebound in free cash flow growth by calendar 2026. “Cash capex will still rise in FY26,” he said, “but the rate should moderate, and finance lease obligations may also decline.”
Microsoft is scheduled to report earnings after the bell on April 30. Analysts expect earnings per share of $3.22 on revenue of $68.44 billion.
