Six weeks ago, Wall Street fretted that Microsoft’s data-center spending was spiraling out of control. Today, the same capital outlays are being cheered as proof of competitive muscle. The stock has clawed back nearly a third of its value since the June trough, trading at €434.90 — a remarkable reversal in sentiment that owes as much to a change in depreciation policy as it does to surging cloud demand.
The inflection point arrived with the fiscal fourth-quarter print in late July. While Alphabet took a beating for its ballooning capex — shares fell 7 percent the day after it flagged investments of up to $205 billion — Microsoft sidestepped the same punishment by extending the estimated useful life of its data centers and office properties from 15 to 25 years, effective at the start of the new fiscal year. The accounting tweak trims the projected 2026 capex bill from roughly $190 billion to around $175 billion.
Skeptics call it cosmetic. CFO Amy Hood was careful to note that actual investment plans are unchanged apart from the accounting effect, and she signaled even higher spending for fiscal 2027, citing “demand signals across the portfolio.” The market, however, chose to read the move as validation that Azure’s infrastructure will last longer than feared — and the rally took hold.
That optimism is underpinned by numbers that are hard to argue with. Azure surpassed the $100 billion annual revenue mark for the first time in fiscal 2026, up 41 percent, keeping it ahead of Google Cloud though still trailing Amazon Web Services. In the most recent quarter, the cloud business grew 43 percent, with AI services contributing 11 percentage points of that growth. Intelligent Cloud revenue reached €39.31 billion. For the current quarter, Hood guided to revenue of $89.85 billion to $90.95 billion — roughly 16 percent growth at the midpoint — and Azure growth of 45 percent in constant currency, well ahead of the 41.4 percent analysts had penciled in.
The headline earnings figures were equally robust. Revenue rose about 18 percent in the quarter ended June 30, with net income climbing to $35.77 billion, or $4.81 per share, versus $27.23 billion, or $3.65, a year earlier. Buried in that jump is a $480 million boost to net income — 7 cents per share — from gains on Microsoft’s OpenAI investment. Strip that out and the underlying operating momentum looks slightly less heroic.
The sell-side has responded with a flurry of target hikes. Goldman Sachs’ Gabriela Borges raised her price target from $610 to $640 on July 30, calling the quarter a “turning point” after a stretch of relative underperformance. Tigress Financial Partners went further in early August, lifting its twelve-month target nearly 16 percent to $690. Jefferies and Bernstein also reaffirmed bullish stances with targets around $575 and $647, respectively. The consensus target sits at €486.83, implying roughly 12 percent upside from current levels.
Should investors sell immediately? Or is it worth buying Microsoft?
The product story is gaining traction too. Microsoft now counts 30 million paying Copilot users, a 50 percent jump in just three months. GitHub Copilot is migrating to OpenAI’s new GPT-5.6 Sol model, a move designed to widen the gap with competitors. For a company that has long been accused of selling AI promises rather than products, the adoption numbers are starting to do the talking.
Yet the rally’s velocity has left fingerprints on the technicals. The 14-day RSI reads 77.6 — firmly in overbought territory — and at this pace, a consolidation phase is more a question of when than if. The 50-day moving average of €352.88 sits about 23 percent below the current price, a stark illustration of how quickly the market’s valuation baseline has shifted.
There are also legal clouds gathering. A class action led by Levi & Korsinsky alleges Microsoft misled investors about Copilot and Azure adoption while concealing technical problems and the diversion of compute capacity away from Azure. The lead-plaintiff deadline is August 11. A separate suit was filed July 14 by Bleichmar Fonti & Auld, following a 10 percent drop in the stock. The claims period runs from May 1, 2025, to January 28, 2026.
Adding to the unease: free cash flow fell 23 percent to $19.64 billion in the quarter, a direct consequence of the accelerated infrastructure buildout. Microsoft has reportedly been buying additional compute capacity from Amazon and Google amid capacity constraints, following a spate of GitHub outages — not exactly the profile of a company whose own infrastructure is keeping pace without strain. Investor Michael Burry’s warnings about an AI bubble continue to echo in the background, even as Microsoft’s market capitalization reaches €3.172 trillion.
Insider activity has raised a few eyebrows as well. Marketing chief Takeshi Numoto sold 4,810 shares on a day when the stock hit its 2025 closing high of $492.81, pocketing an average of $496.48 per share. It was the first insider sale in two months and only the sixth this calendar year — hardly a stampede, but the timing alongside the peak is notable.
Two dates stand out on the calendar: August 11, the class-action deadline, and August 20, when the stock goes ex-dividend. The stock currently sits 10.15 percent below its 52-week high of €478.10 from October 28, 2025, suggesting the euphoria has cooled somewhat. The operational story from Azure and Hood’s confident guidance are compelling reasons to stay constructive. But between the cash-flow squeeze, sector-wide capacity pressures, and a mounting legal docket, this is a rally that deserves a skeptical eye — even as Microsoft reclaims its status as Wall Street’s favorite AI bet.
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