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Regards,
Ross Givens
Director of Research, Traders Agency

Microsoft Earnings Are Coming—But Azure and CapEx Will Decide the Reaction

By Chris Markoch. Posted: 7/24/2026.

Microsoft Corp. (NASDAQ: MSFT) reports fiscal fourth-quarter 2026 earnings on July 29. Microsoft will likely beat both top- and bottom-line estimates. However, investors will be more focused on what management says about capital expenditures (CapEx) in fiscal 2027 (FY2027).

Analysts expect diluted earnings per share (EPS) of $4.21, up 15.3% from a year ago. Microsoft has beaten estimates for four consecutive quarters. That part of the story is almost routine and helps explain why MSFT has delivered a total return of more than 680% over the last 10 years.

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But past performance doesn’t remove the real tension investors face. That tension comes down to one line item: CapEx spending. MSFT is down 29% from its record high, even as the AI trade continues to expand. Investors are worried that Microsoft has unleashed a spending machine that will never slow down.

Why the CapEx Number Outweighs the Earnings Beat

Third-quarter CapEx came in at $31.9 billion, up 49% year over year. Not surprisingly, free cash flow (FCF) fell 22% to $15.8 billion. That combination—soaring spending and shrinking cash generation—summarizes what makes Wall Street nervous heading into July 29.

Because this report marks the end of its fiscal year, Microsoft must provide guidance for FY2027. Analysts expect CapEx growth in the 20% to 30% range, which would mean around $220 billion. That number will set the tone for the entire AI trade, not just Microsoft.

A figure near $220 billion would represent roughly 20% to 30% growth, in line with what's already priced into the shares. It would signal discipline rather than excess. That range also matters because it keeps CapEx growth below Azure's. Microsoft's cloud engine can't keep funding its own buildout if spending outpaces the growth it's intended to support.

Analysts are already tracking this math closely. Full-year 2026 revenue is projected between $324 billion and $327 billion, with EPS guided between $16.46 and $17.10. Those figures assume Azure keeps growing near guidance, rather than above it.

If CapEx guidance lands in that expected range, the market can continue believing Microsoft's AI bet is sized correctly. If it comes in hotter, the FCF concerns from Q3 will worsen, not improve.

Azure's Growth Rate Is the Real Scoreboard

Azure growth is the number that will determine whether Microsoft's spending looks smart or reckless.

Guidance calls for growth in the 30%-40% range. Anything below that would be a red flag. It would mean CapEx is rising faster than the business can justify.

Third-quarter Azure and cloud services revenue grew 40%, or 39% on a constant-currency basis. That's the bar Microsoft has to clear again on July 29.

Microsoft Cloud revenue overall reached $54.5 billion, up 29%. AI revenue crossed $37 billion in annual run rate, up 123% year over year. Copilot's paid commercial seats topped 20 million, growing 250% year over year. Those are the engines CapEx is intended to fund.

The math only works if Azure keeps pace. Even a modest slowdown here would make the CapEx conversation far more uncomfortable.

The Upside Case Almost Nobody's Pricing In

There's a more bullish scenario, but it's a long shot: Azure growth could exceed 40%.

That would suggest AI spending is already paying off faster than expected, rather than merely keeping pace. It's the kind of result that could reignite the AI trade broadly, not just for Microsoft.

Few analysts expect it. It's probably too early for that kind of acceleration to show up. Still, it's the scenario worth watching for anyone holding MSFT into earnings.

Microsoft's commercial backlog offers some support either way. Remaining performance obligations hit $627 billion in Q3, up 99% year over year. That backlog gives Microsoft visibility into revenue for years, even if near-term Azure growth stays range-bound.

Where the Stock Sits Heading Into the Print

Technically, MSFT looks stuck in neutral. Shares sit near $380, just below their 50-day moving average of around $400.

The stock rebounded from an April low near $345 to a June high above $460, then pulled back through July. That leaves MSFT range-bound heading into earnings, with no clear technical bias in either direction. But it’s becoming increasingly difficult for long-term investors to find hope in a dead-money narrative.

What This Means for Investors

The setup is straightforward, even if the stakes are high. An EPS beat is expected. CapEx guidance near $220 billion would be expected and tolerable. CapEx guidance meaningfully above that level is the real risk.

Microsoft trades below its own 10-year average valuation, even after this year's AI buildout. Analyst sentiment remains overwhelmingly bullish, with roughly 43 Buy ratings against six Holds and a consensus price target around $556.

That bullish consensus assumes management keeps CapEx disciplined. July 29 will either confirm that assumption or force a rethink. The earnings beat is table stakes. The CapEx number will tell the real story.

Meta’s Earnings Show Why Wall Street Is Losing Patience With AI Spending

Reported by Leo Miller. Article Published: 7/30/2026.

A week after Alphabet (NASDAQ: GOOG) reported earnings, it was Meta Platforms' (NASDAQ: META) turn to provide the latest financial litmus test among AI hyperscalers.

Unfortunately for Meta, its stock suffered a similar post-earnings fate as Alphabet. Shares dropped approximately 6% in after-hours trading, not far below Alphabet’s roughly 7% decline.

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Deloitte ranked Mode North America's number 1 fastest-growing software company in 2023 after 32,481% growth. Pre-IPO shares are available at $0.52 before the price changes on August 14.

See how to invest in Mode Mobile before the August 14 deadline.

Meta disappointed on multiple fronts, some quantitative and others qualitative. However, some of these factors are not as negative as they may initially seem. Investors are still waiting for Meta to translate its massive AI spending into the significant non-advertising opportunities the company envisions. Patience remains key to realizing Meta stock’s significant potential gains going forward.

Legal Charges Drive the Earnings Miss

Meta’s revenue came in at $60.80 billion in Q2, an increase of 28% year over year (YOY). This was solidly above estimates of $60.22 billion. Ad impressions delivered rose 14% YOY, a notable deceleration from 19% in Q1, while the price paid per ad remained strong, increasing 12%. However, the first area where Meta ran into trouble was earnings per share (EPS). EPS was $6.18, down approximately 13% YOY. This compared with analyst estimates of $7.13, which implied growth of nearly 0%.

Still, the miss is not as drastic as it appears after adjusting for certain expenses. Meta noted that it faced $2.40 billion in legal charges, as well as $1.18 billion in severance expenses. These costs resulted from youth-related legal issues and the company’s recent layoffs, which affected approximately 8,000 employees. Excluding these expenses, Meta’s operating income would have been $22.35 billion, representing roughly 9% growth rather than the 8% decline it reported. Holding its interest expenses, tax rate and share count constant would result in EPS of approximately $7.30, solidly exceeding estimates.

Because the company’s headcount reduction should result in lower expenses over time, it is fair not to hold the $1.18 billion in severance costs against it. However, as a social media business with massive reach, large occasional legal expenses remain a real risk.

Overall, it is positive that Meta exceeded EPS expectations from a purely operational standpoint. However, investors should not overlook the fact that legal issues can significantly hurt Meta’s reported profitability. As Meta notes, “we continue to see scrutiny on youth-related issues in several markets and have a number of youth-related trials scheduled for this year in the U.S., which may ultimately result in a material loss."

Meta Misses on Q3 Guidance, Provides Little Detail on Non-Ad Opportunities

Another disappointing aspect of Meta’s report was its Q3 revenue guidance. The company expects sales of $61 billion to $64 billion, or $62.5 billion at the midpoint. This midpoint was moderately below the $63.2 billion analysts expected. However, it is worth noting that the company’s guidance range still extends beyond $63.2 billion at the upper end.

Meta also raised its capital expenditure guidance (CapEx), although the increase was small. The company expects to spend between $130 billion and $145 billion on CapEx in 2026, or $137.5 billion at the midpoint. That is up from its prior range of $125 billion to $145 billion, with a midpoint of $135 billion, implying an increase of roughly 1.9%. However, when combined with the reported EPS miss and lower-than-expected Q3 revenue guidance, even a slight CapEx increase is not what markets want to see.

Meta also didn’t share many specifics regarding its more forward-looking opportunities, such as cloud or Muse Spark 1.1 adoption. On cloud, the company said it sees a “large enterprise opportunity” in “potentially selling compute directly," framing it as a possibility rather than a decided move. Meta added, “We're getting a lot of offers for compute at a significant premium over what we paid for it." Cloud was one of several large enterprise opportunities Meta outlined.

Others included its Application Programming Interface (API), which is how it plans to monetize models such as Muse Spark 1.1. Notably, the company said the number of people interacting with the Meta AI assistant each day has risen 60% since it rebuilt Meta AI and integrated Muse Spark. This indicates that the model is making Meta AI significantly more useful. The other enterprise opportunity is business agents.

Meta also said it was “developing new personal agents that will be the foundation for our next wave of products and revenue lines in the months and years ahead.” However, regarding future products and revenue streams, CEO Mark Zuckerberg’s line—“we'll have more to share on all of this soon”—sums up the call.

As Investors Wait, Meta’s Free Cash Flow Falls Below $1 Billion

Meta is growing at a strong pace, but the company’s non-advertising AI revenue generation remains a wait-and-see proposition. The Muse Spark 1.1 API, cloud and the various agents Meta is developing are the main non-advertising opportunities to watch going forward. In the meantime, Meta’s free cash flow dropped to just $784 million as it continues to spend billions on AI infrastructure to realize these opportunities.

Meta isn’t alone in seeing its free cash flow fall to historically low levels; Alphabet’s free cash flow came in at -$5.9 billion in Q2. These figures are reminders that hyperscalers will continue to spend heavily on AI, even if the market may not be rewarding them at this point.