Microsoft’s High-Wire Act: Cost Trims and AI Ambitions Set Stage for July 29 Earnings

Microsoft’s quarterly report on July 29 looms as a defining moment for a company wrestling with competing pressures. The stock, which closed Friday at €337.45 for a modest 0.33% gain, continues to trade in a months-long downtrend — down 16.39% year-to-date and 21.30% over the past twelve months. The same week that brought a fresh round of job cuts also saw the company publicly reaffirm its partnership with OpenAI, even as it quietly shifts more workloads to its own artificial intelligence models.

The 4,800 positions eliminated, representing roughly 2.1% of the global workforce, hit the Xbox division especially hard — around 3,200 jobs, or about one-fifth of the gaming unit’s staff. Chief Executive Satya Nadella sought to frame the reductions as a reorganisation rather than a pure downsizing, telling employees “Here is what is changing.” The company notes it has moved more than 4,000 people into new roles over the past year, with another 500 reassigned in July alone. Four gaming studios have also been placed under fresh management.

At the same time, Microsoft took steps to clarify its relationship with OpenAI. The launch of GPT-5.6 came with an explicit announcement that the model will serve as the preferred artificial intelligence inside Microsoft 365 Copilot — covering Word, Excel, PowerPoint, chat and collaboration features. Nitin Agrawal, the executive responsible for Copilot & Agents Core, said the integration would deliver markedly better results across those applications. The timing countered recent reports from Bloomberg suggesting Microsoft was replacing parts of OpenAI’s software with its own MAI models to cut costs. Analysts were quick to note that the two moves are not contradictory: Microsoft can continue to use OpenAI’s latest technology in premium Copilot features while deploying its cheaper internal models elsewhere.

That cost push is already visible in products like Excel and Outlook, where tens of thousands of weekly AI queries now run on Microsoft’s MAI models rather than external suppliers. The shift is widely read as a margin improvement play, reducing reliance on expensive third-party computing power.

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

Not everyone is convinced of the payoff. Argus cut its price target on the stock from $620 to $510, though analyst Joseph Bonner maintained a buy rating. His commentary pointed to growing doubts about the pace of AI investment relative to the returns so far. The market appears to be taking a cautious view: the stock sits 29.42% below its 52-week high of €478.10 from October 2025, and only about 10% above last month’s low of €307.10.

Technicals offer little reassurance. Microsoft currently trades below both its 50-day moving average of €348.17 and its 200-day average of €378.98. The relative strength index of 49.1 signals neither oversold nor overbought conditions, while annualised volatility of 34.42% points to continued price swings.

The July 29 earnings release — covering the fourth quarter of fiscal 2026 — will show whether the company can weave together cost discipline, a hefty AI infrastructure buildout, and employee morale into a credible growth story. Until then, the interplay of job reductions, the OpenAI dance, and Wall Street’s demand for tangible AI profits will keep the narrative in motion.