Investment bank Evercore has highlighted potential upside for revenue from Microsoft's cloud computing platform Azure and provided insights on the newly released Copilot Wave 3 and Microsoft 365 E7. A team led by analyst Kirk Materne stated, "We attempted to estimate the potential upside to our 2026 calendar year Azure revenue forecast based on Microsoft's capital expenditures. Our analysis inevitably involves significant assumptions, but the core conclusion is that, assuming capacity build-out and chip deliveries proceed as planned, we anticipate Microsoft could generate approximately $25.7 billion in incremental Azure AI revenue by the 2026 calendar year, up from our prior estimate of $21.8 billion. This outlook contains many assumptions, but if non-AI Azure revenue growth trends remain around 16%, we believe total Azure revenue for calendar year 2026 could grow by approximately 41% (about 4.3 percentage points higher than our previous forecast)."
The analyst noted that while fundamentals remain solid—Microsoft's total revenue grew 15% year-over-year in the second fiscal quarter at constant currency, primarily driven by 38% Azure revenue growth—the failure of Azure growth to accelerate further, coupled with higher capital expenditure growth and some market questions regarding Microsoft's broader AI strategy, specifically Copilot, have collectively put pressure on the stock price. The analyst added that Microsoft's current capacity issues cannot be resolved quickly, so an acceleration in Azure growth is more likely to occur in the second half of calendar year 2026.
The analyst said, "In our view, the lack of a near-term catalyst for Azure, combined with debates around how GPUs are allocated between internal business (1P) and Azure (3P), is keeping investors on the sidelines for now. However, at 18.5 times GAAP earnings per share, the current valuation already reflects a significant degree of market pessimism. Therefore, any acceleration in Azure revenue later this year or an inflection point in the Copilot narrative could serve as catalysts for upward stock movement."
Furthermore, earlier this month, Microsoft released Microsoft 365 Copilot Wave 3 and Microsoft 365 E7, a new top-tier licensing package for organizational customers dubbed the "Frontier Suite." Microsoft 365 E7 includes Microsoft 365 E5 (productivity and security), Microsoft 365 Copilot, Agent 365, and the Microsoft Entra Suite. The analyst commented, "Clearly, over the past few months, user-level excitement around Copilot has not garnered the same level of attention as something like Anthropic's Coworker. However, driving adoption in the enterprise market is a marathon, not a sprint. Microsoft's distribution capabilities and vast installed user base ultimately position it to potentially achieve broad Copilot adoption across a large number of enterprises."
From an investor perspective, the analyst believes the lack of usage data related to Copilot is a current challenge. The analyst stated, "While we understand Microsoft's preference for commercialization via SKU bundling, in the AI era, we believe 'usage = value.' Therefore, providing investors with key performance indicators based on Copilot usage and consumption would help demonstrate how recent Copilot adjustments are driving broader adoption."
Additionally, the analyst indicated that discussions with partners and enterprise customers show clear progress in enterprise deployments, particularly regarding productivity tools and developer use cases, while more advanced capabilities like agentic AI continue to evolve. The analyst concluded, "Importantly, Microsoft continues to benefit from its extensive enterprise customer reach and integrated technology stack, though overall adoption is still progressing in phases."
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