"Microsoft beat consensus in Q1 with EPS of $3.72 versus the $3.66 estimate. Revenue climbed 18.4% year over year to $77.67 billion, and operating margin held at 48.9%. Since that October report, shares rallied 107% over the past five years but underperformed across the last year with just a 7% gain while many other leading AI stocks soared. However, the stock jumped 7% in the past week alone, driven partly by a BNP Paribas upgrade to $659 and buzz around the company's new Maia 200 AI chip."
"Capital expenditures hit $19.39 billion in Q1, up sharply as Microsoft builds out data centers and custom silicon. Stifel recently cut its price target from $640 to $520, citing margin pressure from AI talent costs and compute spending, even while maintaining a Buy rating. Azure growth is the critical metric. Analysts expect the Intelligent Cloud segment to drive expansion, supported by OpenAI partnerships and Azure Ignite innovations like Microsoft Foundry. The key question is whether consumption trends justify the massive capex outlays. Operating margin compression would signal that AI investments are eating into profitability faster than revenue can offset."
Microsoft faces scrutiny as its Q2 fiscal 2026 earnings report could reshape expectations for AI infrastructure spending and Azure growth. Q1 results showed EPS of $3.72 versus $3.66 estimate, revenue up 18.4% to $77.67 billion, and operating margin at 48.9%. Shares rallied 107% over five years but lagged peers over the last year. Recent optimism followed a BNP Paribas upgrade and the Maia 200 AI chip launch, which aims to reduce NVIDIA reliance and compete with TPU and Trainium. Capital expenditures rose to $19.39 billion in Q1. Analysts warn that heavy AI-related capex and talent costs could compress margins unless consumption scales.
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