Microsoft shares fell about 27% from their all-time peak and are down roughly 20% this year, marking one of the weakest performances among large-cap tech stocks in 2026. Despite this, Bank of America maintained a Buy rating on the stock with a $500 price target ahead of the company’s Q4 earnings report scheduled for July 29.

Key Metrics and Expectations for Q4

Investors are focusing on Azure's revenue growth, which Microsoft projects to rise between 39% and 40% year over year in constant currency terms for the quarter. Bank of America emphasized that meeting or exceeding this growth range is critical. Falling short could raise doubts about the returns on Microsoft’s sizable AI infrastructure investments.

Microsoft’s cloud backlog stood at $627 billion at the end of Q3, with management anticipating about 25% of that amount to convert into revenue over the next 12 months. The recent full operation of the Fairwater data center in Wisconsin could help Microsoft address demand that has outpaced Azure’s infrastructure capacity for multiple quarters.

Capital expenditures are a focal point, with Microsoft guiding for up to $190 billion in spending for 2026, surpassing its trailing cash from operations of $170 billion. This gap has pressured free cash flow and contributed to investor concerns. Bank of America projects Q4 capital spending at approximately $42 billion. also Citi pointed out that investors will closely watch the company’s fiscal 2027 operating margin guidance, which may be conservative given expected continued heavy investments.

Microsoft’s AI-related offerings are expanding rapidly. The Copilot platform ended Q3 with 20 million paid seats, while AI annual recurring revenue reached $37 billion. WorkIQ, the system supporting Copilot’s intelligence, now manages over 17 exabytes of data. Close to 90% of Fortune 500 companies use active agents built with Copilot Studio. Microsoft has around 400 million M365 licenses among enterprises, representing a large base for potential Copilot adoption. The company is shifting toward consumption-based AI pricing models, potentially increasing average revenue per user over time.

Currently, Microsoft trades at about 19 times Bank of America’s calendar 2027 earnings forecast, a significant discount compared to its five-year average.

This material is for informational purposes only and does not constitute financial advice.