Microsoft stock falls, analysts trim price targets ahead of Q4 earnings

Microsoft NASDAQ:MSFT shares fell 1.5% on Friday, extending a difficult year for the software giant as investors continued to weigh heavy artificial intelligence spending against the company's long-term growth prospects.

The stock has declined more than 20% in 2026 and nearly 23% over the past year, even as Microsoft has continued investing aggressively in AI infrastructure and Azure cloud services.

Several Wall Street firms revised their price targets this week ahead of Microsoft's fiscal fourth-quarter earnings report on July 29, while largely maintaining bullish ratings on the stock.

Wall Street lowers targets but maintains bullish ratings

Citi reduced its price target on Microsoft to $570 from $620 while maintaining a Buy rating.

According to reports, the firm said the lower target reflected broader valuation compression across software stocks rather than any deterioration in Microsoft's business fundamentals.

The bank said its channel checks remained positive, highlighting healthy adoption of Microsoft 365 Copilot and the company's positioning as enterprises increasingly optimize AI spending.

Citi expects Microsoft to deliver a strong fiscal fourth-quarter report but believes investors will focus closely on management's outlook for fiscal 2027, particularly regarding operating margins and capital expenditure.

Other brokerages also adjusted their targets.

Mizuho analyst Gregg Moskowitz lowered his price target to $490 from $515 while maintaining an Outperform rating.

"SaaS (software-as-a-service) continues to be resilient, although multiples continue to be plagued by investor concerns about AI-led disruption," Moskowitz said in a research report on software stocks.

He added that Microsoft continues to see improvement in its Azure cloud computing and Microsoft 365 Copilot businesses despite broader concerns surrounding AI-native competitors and infrastructure spending.

Wells Fargo also lowered its price target to $625 from $650 while maintaining its Overweight rating, citing questions around cloud market share and the pace of capital expenditure.

Evercore ISI moved in the opposite direction, raising its price target to $525 from $510 while maintaining an Outperform rating.

Investors await key Azure and AI spending updates

Microsoft is scheduled to report fiscal fourth-quarter results after the market closes on July 29.

Consensus estimates compiled by Fiscal AI and Koyfin call for earnings of $4.24 per share on revenue of $86.66 billion.

Analysts expect Azure growth and operating margin guidance to be the primary focus during the earnings release.

While Citi expects the fourth-quarter results to be solid, the firm believes management's commentary on fiscal 2027 could prove more important for investors as Microsoft continues expanding its AI infrastructure.

Heavy AI investments remain under scrutiny

Microsoft's aggressive capital spending remains one of the biggest concerns for investors.

The company spent $30.88 billion on capital expenditures during its fiscal third quarter, up 84.4% from a year earlier.

According to Forbes estimates, Microsoft's total fiscal 2026 capital expenditure could reach approximately $190 billion as the company continues investing in AI data centers, Azure infrastructure and computing capacity.

The elevated spending has pressured margins and free cash flow, contributing to the stock's underperformance despite continued business growth.

At the same time, analysts note that enterprise demand for AI remains healthy.

Bernstein's mid-year CIO survey pointed to strong IT budget growth in 2026, supporting Azure demand, although investors continue to monitor whether Microsoft can translate that investment into market share gains and stronger financial returns.