Microsoft Faces Split on Wall Street as Earnings Loom: AI Optimism Meets Capex Concerns

Microsoft heads into its fourth-quarter fiscal earnings on July 29 with analysts deeply divided on valuation, even as the vast majority retain their bullish ratings. Four major Wall Street houses have adjusted their price targets in recent days—three downward and one upward—underscoring the tension between surging AI revenue and the escalating capital expenditure required to sustain it.

Evercore ISI bucked the trend, lifting its target to $525 from $510 with an “Outperform” call, citing the ongoing AI investment cycle. But Citigroup slashed its target from $620 to $570, Mizuho cut from $515 to $490, and Wells Fargo trimmed from $650 to $625. All four firms kept their equivalent of a buy rating. The pattern is clear: analysts are marking down the stock’s fair value without abandoning faith in the underlying business.

Citi’s Tyler Radke attributed his move to multiple compression across the enterprise software sector. He still expects a strong fourth quarter, driven by Azure and the M365 Copilot, but flagged a conservative outlook for the first quarter of fiscal 2027 as Microsoft shoulders higher investment outlays. Mizuho’s Gregg Moskowitz described his channel checks as positive, with cloud data points strong and AI adoption robust, while Wells Fargo pointed to a mixed Q4 outlook tied to cloud market dynamics.

The numbers driving the debate are stark. Microsoft’s AI business has reached an annualized revenue run rate of $37 billion, up 123% year over year. Yet capital expenditure in the third quarter hit $30.88 billion, an 84% surge from the prior year, according to D.A. Davidson analyst Gil Luria. The operating margin stood at 46.3% in that quarter. Luria views the heavy spending as evidence that AI investments are paying off, albeit with a lag—data centers are often fully booked before completion.

The stock has struggled to hold its ground. Shares closed Wednesday at €344.95, up 2.56% on the week, but remain 13.38% lower year to date and 20.62% below their level 12 months ago. The 200-day moving average sits at €377.48, leaving the stock roughly 7% beneath that benchmark. From the 52-week high of €478.10 set in October 2025, the drop is 27.85%, while the distance from the low of €307.10 is about 12.32%. The RSI stands at 53.9, implying neither overbought nor oversold conditions after the recent recovery.

GuruFocus pegs the stock’s fair value at $563.10 and awards it a GF Score of 92 out of 100, suggesting it is undervalued relative to its own model. The consensus among 56 analysts tracked by Koyfin remains heavily bullish: 53 rate the stock a “Buy” or higher, with only a handful assigning a “Hold.” The average price target is roughly $548, though the range spans from $490 (Mizuho) to $625 (Wells Fargo).

Should investors sell immediately? Or is it worth buying Microsoft?

Away from the earnings calendar, Microsoft is overhauling its cybersecurity division. Security chief Hayete Gallot, appointed in February 2026, has replaced at least eight executives who reported to her predecessor Charlie Bell. Hundreds of positions are being eliminated as part of a broader, AI-driven workforce reduction of 4,800 roles—2.1% of total employees. The unit’s focus is shifting from traditional security products toward AI-powered tools such as Security Copilot, code vulnerability scanners, and monitoring for AI agents. The goal, according to an internal memo, is nothing less than reinventing the entire industry from scratch.

The company also published its largest monthly patch update in July, closing 570 security holes—three times the June count—including three zero-day vulnerabilities. Two were already under active exploitation: an elevation-of-privilege flaw in Active Directory Federation Services and a SharePoint bug. The third involved a BitLocker bypass. Microsoft said its AI detection system, MDASH, helped identify the threats.

On the partnership front, Microsoft deepened its alliance with 3M. The industrial conglomerate will integrate Azure, Copilot, and Dynamics 365 into its operations, while Azure becomes the first hyperscale cloud to deploy 3M’s Expanded Beam Optical fiber technology. Financial terms were not disclosed.

Legal risks are also mounting. A class-action lawsuit filed by multiple law firms targets investors who bought Microsoft shares between May 2025 and late January 2026, with a lead-plaintiff deadline of August 11, 2026. The complaint alleges weaknesses in the Copilot marketing strategy and circular revenue arrangements between Azure and Microsoft’s partners OpenAI and Anthropic.

For the quarter ending in July, the analyst consensus compiled by Fiscal AI forecasts earnings of $4.24 per share on revenue of $86.66 billion. The post-earnings outlook on capital expenditure may ultimately carry more weight than the headline numbers. As the July 29 report approaches, the central question remains whether the bulls’ bet on accelerating Azure and Copilot growth will vindicate their optimism—or whether rising costs will prove the more dominant force.