Microsoft is scheduled to announce its third fiscal quarter results on April 29. Morgan Stanley believes the tech giant may aim to "reclaim the market narrative" as investors remain cautious for various reasons. Analyst Keith Weiss maintains an "Overweight" rating on Microsoft with a price target of $650. Weiss stated in a client report that while Microsoft demonstrated strong commercial demand at the end of the second quarter of fiscal 2026, investor focus remains on supply constraints and GPU allocation limiting Azure growth, alongside growing concerns about Copilot's competitive position relative to AI Labs. Last quarter, Microsoft achieved double-digit revenue growth and expanded its operating margin. Forward-looking indicators, such as a 110% year-over-year increase in Remaining Performance Obligations (approximately $625 billion) and a 39% rise in current RPO, suggest sustained momentum in its commercial portfolio. Looking ahead to the third quarter of fiscal 2026, Azure's growth will continue to depend on capacity availability rather than demand. Meanwhile, Microsoft is heavily investing in AI infrastructure, with capital expenditures focused on short-term, revenue-generating assets like GPUs and CPUs. Weiss noted that Azure growth reaching around 39% would be "clearly viewed as positive," especially considering his belief that this target is achievable. He added that improvements in Copilot products will boost market sentiment and maintain growth momentum, building on the key performance indicator of 15 million new paid Copilot users last quarter as Microsoft expands its user base. Beyond Azure capacity—which Microsoft allocates to both internal and external users—other factors to watch include gross margin, operating margin, and the level of resource constraints within Azure.
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