Microsoft Stock Is Beaten Down Heading Into Earnings - But Analysts Still See Big Upside

Microsoft (NASDAQ:MSFT) shares have dropped roughly 21% in 2026, hitting a 52-week low of $349.20 in late June before bouncing to around $382. Reviewing where you stand financially often starts with your biggest holdings, and Microsoft has long been one of the most widely held names in the market.

The stock now trades well below its 200-day moving average, yet analysts still see significant upside ahead. Here's what the chart, earnings record, and Wall Street targets reveal before July 29.

The stock sits well below its 200-day moving average

Microsoft shares closed at $381.58 on July 23, placing the stock roughly 21% below where it started the year and about 31% below the 52-week high of $555.45 set in July 2025, according to CNBC. The shares bottomed at $349.20 on June 25, their lowest level since late 2021.

The 200-day simple moving average sits near $436, as reported by TipRanks, and the 50-day average has crossed below it in a bearish formation. Mounting anxiety over AI-related spending and a broader rotation out of large-cap tech have driven the extended selloff.

Eight consecutive earnings beats haven't moved the needle

Microsoft has topped Wall Street's earnings-per-share estimates in eight consecutive quarters, according to Benzinga. The most recent beat came in the third quarter of fiscal 2026, when the company posted EPS of $4.27 versus the $4.07 consensus, a surprise of nearly 5%.

Revenue for that same quarter reached $82.9 billion, up 18% year over year and above the $81.4 billion estimate, based on reports from Microsoft's investor relations page. The numbers suggest the underlying business is performing well even as the stock price tells a very different story for your portfolio.

Azure grew 40% while AI revenue crossed $37 billion

Azure and other cloud services revenue grew 40% year over year during the third quarter of fiscal 2026, re-accelerating after two quarters of slowing growth. Microsoft Cloud revenue overall reached $54.5 billion, up 29% year over year.

CEO Satya Nadella noted during the earnings call that the company's AI business surpassed a $37 billion annualized revenue run rate, up 123% year over year, as reported by CNBC. Paid seats for Microsoft 365 Copilot also topped 20 million, with seat growth increasing 250% year over year.

Remaining performance obligations crossed $627 billion

Microsoft's commercial remaining performance obligations (RPO) reached $627 billion at the end of the third quarter, up 99% year over year, according to Microsoft's earnings release. RPO represents contracted revenue the company has not yet recognized, with a weighted-average duration of roughly 2.5 years.

Excluding commitments tied to OpenAI, RPO still grew roughly 26% year over year, indicating broad enterprise demand beyond a single partnership.

Aggressive capital spending fuels the bear case

Microsoft's capital expenditures are projected at roughly $190 billion for fiscal 2026, with more than $40 billion expected in the fourth quarter alone. The sequential increase includes about $5 billion tied to higher component pricing, the company noted in its guidance.

Gross margin dipped to 67.6% in the third quarter from 68.7% a year earlier as depreciation from new data centers increased, according to Microsoft's performance summary. Some investors worry these investments could grow faster than the revenue they generate, compressing margins for several quarters to come.

The forward valuation has dropped near a decade low

Microsoft's forward price-to-earnings ratio has fallen to roughly 20 times next-twelve-months earnings, according to The Motley Fool. The stock has historically traded at about 30 times forward earnings, making the current discount one of the steepest in recent memory.

The S&P 500 itself trades at approximately 21.7 times forward earnings, as noted in the same Motley Fool analysis, meaning you could buy Microsoft for less than the broader market on a forward basis. You may not see this kind of relative discount again once the earnings picture comes into focus.

Analysts rate the stock a buy

A consensus of 56 analysts polled by S&P Global gives Microsoft a "Strong Buy" rating with an average 12-month price target of roughly $557, according to Stock Analysis. The lowest target sits at $400 and the highest reaches $870.

Key individual calls include:

• Dan Ives at Wedbush Securities maintains an outperform rating with a $575 target, calling the AI growth story mispriced.
• Bernstein raised its target to $641, citing accelerating Azure growth.
• Truist Securities' Terry Tillman holds a buy rating at $575.
• Morgan Stanley initiated coverage at overweight with a $600 target.

The Q4 print on July 29 could close the gap

Consensus estimates call for fourth-quarter revenue of approximately $87.6 billion and EPS of $4.24, representing roughly 15% and 16% year-over-year growth, as stated by TipRanks. Microsoft guided total revenue between $86.7 billion and $87.8 billion for the quarter.

You may want to pay less attention to the headline numbers and focus more on Azure's growth trajectory, management commentary around easing capacity constraints, and any updates on how quickly AI spending translates into durable revenue gains for the company going forward.

Bottom line

The chart and the fundamentals are sending opposing signals. Microsoft's price action reflects genuine concerns about AI spending and near-term margin pressure, while the underlying business keeps beating expectations, growing cloud revenue near 40%, and locking in hundreds of billions in future contracts.

Monitoring this stock alongside must-have investing apps could help you track how the disconnect plays out. The data suggests that a $382 stock and a $557 average price target rarely coexist for long, and the July 29 earnings report may be the event that forces one side to change.

This article is for informational purposes only and should not be considered investment advice.