AI momentum, cloud margins, and valuation concerns heading into Jan. 28  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

January 25, 2026   |   Read Online Microsoft Ahead of Earnings: Bull Case vs. Bear Case AI momentum, cloud margins, and valuation concerns heading into Jan. 28 First a Message from our Friends at Immersed [ad] Have you heard about this sub $1 company that is making people "Superhumans"? It's all thanks to their new product called Visor. And it's very similar to Jarvis from the movie Iron Man. Investors are calling this a 'massive breakthrough'. But not for the reason you think... Investors have already started flooding in to take advantage of this while the company is still private. >>> Click here to see the sub $1 'Superhuman' AI Stock FEATURED ARTICLE Microsoft Ahead of Earnings: Bull Case vs. Bear Case Microsoft heads into earnings on Wednesday, January 28, 2026 (after the close) with a very "classic Microsoft" setup: The business is still compounding. The AI narrative is real (Azure + Copilot + developer tools). But the market is asking a sharper question now: How much are we paying for that growth, and does the margin math still work? Here's the bull case, bear case, and the valuation reality check—with the specific numbers investors are likely to anchor on. What the market expects on Jan 28 Microsoft confirmed it will report FY26 Q2 results after market close Jan. 28 and host the call at 2:30pm PT. Consensus expectations going into the print (as widely circulated in earnings previews): Revenue: about $80.28B EPS: about $3.86 The "center of gravity" for the stock won't be Windows or Office. It'll be: Azure growth AI monetization signals (Copilot / consumption) Cloud margins Capex and supply constraints Barron's notes the Street is modeling Azure growth ~37%, a deceleration from the prior quarter's 40% pace—so the bar is "good, not perfect." Quick refresher: what just happened last quarter (the baseline) In FY26 Q1 Microsoft reported: Revenue: $77.67B (about +18% YoY) Azure and other cloud services revenue: +40% Microsoft Cloud gross margin: 68%, and it declined as AI infrastructure scaled Capex: $34.9B (with roughly half in shorter-lived assets like GPUs/CPUs) Returned to shareholders: $10.7B (dividends + repurchases) That's the trade-off in one snapshot: growth is strong, demand is strong, spending is also strong. The bull case 1) Azure stays "too strong to ignore" If Azure prints closer to the prior 40% pace (or beats the implied ~37% expectation), the narrative snaps back to: Microsoft is the cleanest AI monetization story in megacap. Two reasons this matters: Azure is where AI infrastructure demand becomes revenue now. The market still treats Azure as Microsoft's "proof engine" for AI leadership. 2) AI demand is not theoretical—it's showing up in real spend Microsoft's own commentary last quarter tied capex directly to "growing demand for cloud and AI offerings," and noted that a large chunk of spend is going into GPUs/CPUs to support Azure platform demand and first-party AI solutions. If management indicates: supply constraints easing, strong backlog/commitments, and sustained demand for AI workloads, …then investors tend to pay up for visibility. 3) Copilot becomes less "cool demo" and more "revenue line" The Street is still debating how quickly Copilot turns into durable, high-margin revenue (vs. being bundled/discounted to drive adoption). Any commentary that suggests: improving attach rates, expanding seat deployments, or stronger consumption tied to Copilot features, …can lift sentiment quickly. Also notable: Microsoft's internal embrace of developer AI tools keeps expanding (including experimentation beyond OpenAI-only workflows), which supports the "AI-first productivity stack" thesis. 4) The multiple can re-expand if guidance is clean Trefis points out that a meaningful portion of recent MSFT stock moves has been driven by multiple compression, not collapsing fundamentals. If Microsoft prints a clean quarter and guides confidently, you can get a "multiple relief rally." The bear case 1) Cloud margins are the tripwire Microsoft already told you the issue: Cloud gross margin fell to 68% as AI infrastructure scaled. If the print shows: continued margin compression, higher-than-expected AI serving costs, or slower efficiency gains, …the market will worry that AI is becoming a capex-heavy, margin-dilutive arms race, at least in the near term. 2) Capex sticker shock (again) Microsoft's $34.9B quarterly capex number is enormous, and Reuters highlighted that spending has been outpacing expectations and that Microsoft signaled spend would rise—reversing earlier expectations of moderation. If management reiterates aggressive spend without equally strong monetization signals, investors may keep discounting the stock on "ROI uncertainty." Zooming out: the market is increasingly sensitive to the entire mega-cap AI spending cycle (including debt issuance to fund infrastructure), which can pressure sentiment even when earnings are fine. 3) Azure deceleration (even if still "great") can be treated as a miss This is the funny part of AI expectations: 37% growth is incredible, but if the market wants 40% and you print 36% with cautious commentary, it can trade like something broke. Barron's notes some firms are cutting price targets even while staying positive—because valuation sensitivity in software has risen. 4) Competitive & regulatory noise doesn't disappear Cloud is a knife fight (AWS, Google), and AI model/platform competition is intensifying. Any hint that pricing is tightening or enterprise cycles are lengthening can hit the multiple. Valuation: is Microsoft "cheap" here? Let's be blunt: Microsoft is rarely "cheap" in the traditional value sense. Current price: about $465.95 Trailing P/E: about 36.7x Forward P/E (widely cited): about ~28.0x Compared to mega-cap peers (trailing P/E snapshot) Apple: ~30.3x Alphabet: ~23.6x Microsoft: ~36.7x So… not "cheap vs peers" on trailing earnings. When can you call it "cheap" anyway? Microsoft looks "cheap" when you believe one (or more) of these is true: The market is underestimating Azure durability (AI workloads keep demand elevated). The market is over-penalizing near-term margins, ignoring operating leverage as capex normalizes. The multiple is closer to the low end of its own range for an AI-led upcycle (some bullish analysts argue the stock still doesn't fully reflect the long-term growth path). Dividend and capital return: nice, but not the core thesis Microsoft pays $0.91 per share quarterly. That's $3.64 annually, which at ~$465.95 is about a 0.78% yield. Translation: the dividend is a signal of quality and shareholder friendliness, but you're not buying MSFT for income—you're buying for compounding + AI optionality. (And Microsoft is returning meaningful total capital via buybacks + dividends—$10.7B last quarter alone.) What could happen in the next year (realistic upside paths) 1) AI monetization gets clearer If Copilot moves from "interesting" to "standard line item" across enterprise budgets, you can see: higher per-user economics, increased retention / stickiness, and incremental cloud consumption. 2) Azure stays structurally strong even as growth moderates Azure doesn't need to stay at 40% forever. If it stabilizes in the high 20s / low 30s with improving margins, the stock can still work—especially if the market stops fearing a cliff. 3) Margin leverage returns as capex growth rate slows If Microsoft can show that: the worst margin pressure is behind it, AI unit economics improve, and efficiency gains offset infrastructure costs, …then the market can re-rate the stock upward even without explosive top-line surprise. What probably won't happen (but investors keep hoping for) A clean, immediate "capex drops + margins expand" flip. Infrastructure cycles take time, and Microsoft itself is signaling spend is tied to demand. A year with no volatility. Microsoft is now priced as an AI bellwether; it will trade with AI sentiment. The checklist for earnings night If you only watch four things: Azure growth (and commentary vs supply constraints) Cloud margin trend (does it stabilize from 68%?) Capex direction (scale, pace, and ROI language) Guidance tone (confidence vs caution) Bottom line Microsoft into Jan. 28 is a quality compounder priced like a premium AI platform. Bull case: Azure resilience + AI monetization clarity + guidance confidence = multiple support (or expansion). Bear case: margins + capex stay "too heavy," Azure decelerates, and the stock keeps getting valued more like a mature software giant than an AI winner. Is it "cheap"? Not on headline multiples. But it can be "cheap" relative to its own long-term cash flow power if the market is overly focused on near-term infrastructure costs and underweighting how sticky Microsoft's AI distribution is (Windows + 365 + GitHub + Azure). Disclaimer: This content is for informational and educational purposes only and should not be considered investment advice. Investing in stocks involves risk, including the potential loss of principal. Always do your own research or consult a qualified financial professional before making investment decisions. IMPORTANT NOTICE AND DISCLAIMER Investing Media Solutions, LLC ("IMS"), the owner of this website (the "Website"), cannot guarantee the accuracy or completeness of the information contained in any article, email, newsletter, or other publication posted on or viewed in connection with this website (the "Publications"). The author or authors of those Publications are solely responsible for their contents. IMS has not done any research or due diligence into the markets, industries, or companies which may appear or be mentioned in the Publications. IMS will NOT be liable for any loss or damage caused by a reader's reliance on information posted on the Website or contained in the Publications. FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY; NOT INVESTMENT ADVICE. This Website and the Publications are for educational and informational purposes only. This Website and the Publications do not purport to be a complete analysis of any company's financial position. This Website, the Publications or any statements made in the Publications are not, and should not be construed to be, personalized investment advice directed to or appropriate for any particular individual. This Website or the statements made in the Publications should NOT be relied upon for purposes of transacting in any securities posted on the Website or mentioned in the Publications, nor should they be construed as a personalized recommendation to you to buy, sell, or hold any position in any security posted on this Website or mentioned in any Publications. SUBSTANTIAL RISK IN INVESTMENT. Any individual who chooses to invest in any securities including those mentioned in the Publications should do so with caution. Investing or transacting in securities involves substantial risk; you may lose some, all, or possibly more than your original investment. Readers bear responsibility for their own investment research and decisions and should review all investment decisions with a licensed or registered investment professional. NOT AN INVESTMENT ADVISOR OR REGISTERED BROKER Neither IMS nor any of its respective owners or employees are registered or licensed as a securities broker-dealer, broker, an investment advisor, or an investment advisor representative with the U.S. Securities and Exchange Commission (SEC), any state securities regulatory authority, or any self-regulatory organization. To more fully understand our Website, please review our full disclaimer located at: https://thecheapinvestor.com/disclaimer/ At The Cheap Investor, it's our mission to create and provide a community that helps you invest and understand stocks. When TheCheapInvestor was established, we wanted to make the community an inclusive place where investors can come to get ahead! Not just help them with daily stock picks. The Cheap Investor are provided to you for information only and should not be considered as a stock or investment advisor. The Cheap Investor may make available certain information related to trading strategies and stock prices for educational and information purposes only; any information made available should not be construed as an endorsement, recommendation, or sponsorship of any company or security. By visiting this site or using the training materials, you acknowledge and agree that any reliance upon the content or data available through The Cheap Investor is at your own sole risk. You are strongly advised to use your own judgment, research, and consult a professional advisor. Over the years, and with thousands of followers that use our stock picks daily, we promise to always aim to get better at what we do every single day! In addition, our primary focus is on our communication with you. It's really important to us that every time you come to us, you end up leaving with the help you came for to take your investment portfolio to new levels. We particularly appreciate when our following provides feedback via testimonials, reviews, and comments left on our site or social media accounts. Because with that feedback, we can use it to make your next visit to our site even better than the last! Since we put so much effort into the relationship with you, we hope that any investment in us is exactly the way you hoped it would be. Because by choosing to go with https://TheCheapInvestor.com/, it's our promise that we provide a community you will come back to over and over again. Now, as much as we care about making investors more successful, we also care about your privacy. TheCheapInvestor is owned and operated by TheCheapInvestor website. We're committed to the right to your privacy and strive to provide a safe and secure user experience. Our Privacy Policy explains how we collect, store and use personal information, provided by you on our website. What Information Do We Collect? When you visit our Web site you may provide us with two types of information: personal information you knowingly choose to disclose that is collected on an individual basis and Web site use information collected on an aggregate basis as you and others browse our Web site. For example, you may need to provide the following information: • Name • Website URL information • Email address • Home and business phone number In addition to providing the foregoing information, if you choose to correspond further with us through email, we may retain the content of your email messages together with your email address and our responses. We provide the same protections for these electronic communications that we employ in the maintenance of information received by mail and telephone. It also explains important information that ensures we won't abuse the information that you provide to us in good faith. By accessing and using our website, you can trust that what you want to be kept private, will be kept private. If at any time, you would like to read our Privacy Policy and get a better understanding of your rights and liabilities under the law. Feel free to visit our site, find the privacy policy in the footer and read it. If there is something you are concerned about or wish to get more clarity on, please let us know by contacting us at support@thecheapinvestor.com. The Privacy Policy also informs you of how to notify us to stop using your personal information. If you wish to view our official policies, please visit our website https://TheCheapInvestor.com/ At The Cheap Investor, we are strongly committed to protecting your privacy and providing a safe & high-quality online experience for all of our visitors. We understand that you care about how the information you provide to us is used and shared. We have developed a Privacy Policy to inform you of our policies regarding the collection, use, and disclosure of information we receive from users of our website. The Cheap Investor operates the Website. Our Privacy Policy, along with our Term & Conditions, governs your use of this site. By using https://TheCheapInvestor/, or by accepting the Terms of Use (via opt-in, checkbox, pop-up, or clicking an email link confirming the same), you agree to be bound by our Terms & Conditions and our Privacy Policy. If you have provided personal, billing, or other voluntarily provided information, you may access, review, and make changes to it via instructions found on the Website or by emailing us at support@thecheapinvestor.com. To manage your receipt of marketing and non-transactional communications, you may unsubscribe by clicking the "unsubscribe" link located on the bottom of any marketing email. Emails related to the purchase or delivery of orders are provided automatically – Customers are not able to opt out of transactional emails. We will try to accommodate any requests related to the management of Personal Information in a timely manner. However, it is not always possible to completely remove or modify information in our databases (for example, if we have a legal obligation to keep it for certain timeframes, for example). If you have any questions, simply reply to this email or visit our website to view our official policies. Update your email preferences or unsubscribe here © 2026 The Cheap Investor 203 N La Salle Suite 2100 Chicago , Illinois 60601, United States of America Powered by beehiiv Report abuse Terms of Service