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Microsoft Drops After Earnings—Why the Bull Case Holds
Reported by Chris Markoch. Publication Date: 1/29/2026.
Quick Look
- Microsoft stock plunged after earnings despite beating estimates, as investors reacted to heavy AI infrastructure spending.
- Azure’s 39% growth and continued demand signal Microsoft is investing aggressively to secure long-term leadership.
- Analysts still see roughly 40% upside, suggesting the sell-off may be a buying opportunity rather than a trend reversal.
Microsoft Corp. (NASDAQ: MSFT) was one of the first “Magnificent 7” stocks to report earnings this season. Despite beating on both the top and bottom lines, concerns about the return on Microsoft's aggressive capital expenditures (CapEx) plans have sent the stock sharply lower.
In fact, MSFT stock was down about 11% in midday trading on Jan. 29, the day after the report. That marked the largest intraday loss since March 16, 2020—a dramatic reversal for a stock that was trading at an all-time high just three months before the report.
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The former CEO of Google calls it the most important thing to happen in 500, maybe 1,000 years of human society. A former U.S. Treasury Secretary says when your great-grandchildren write the history of this period, the political headlines will be the second or third story. The first story is something none of us have seen before. The dot-com collapse, global financial crisis, and COVID-19 pandemic don't compare to what's coming next. We may be entering a period of dramatic, almost unimaginable change.
See the full warning and how to prepare now.Microsoft reported earnings per share (EPS) of $4.14 on revenue of $81.27 billion, beating expectations for EPS of $3.86 on revenue of $80.28 billion. Yet many investors feel much of Microsoft's growth is already priced in. Even year-over-year growth of 39% in its Azure cloud business wasn't enough to spark a rally.
Microsoft Is Playing a Long Game
Microsoft and other hyperscalers have become the poster children for the "AI bubble" narrative. Companies such as Microsoft, Meta Platforms Inc. (NASDAQ: META) and Amazon.com Inc. (NASDAQ: AMZN) are investing billions to build data centers that house the servers, chips and other infrastructure needed for AI.
The concern is that the AI applications at the top of the stack may not develop as expected. If that happens, this spending could weigh on profits for these technology companies.
What gets lost in that debate is that Microsoft is playing a long game—and the company is signaling why. Management is committing to current and future CapEx because demand is outpacing its ability to build capacity.
That's a similar message investors are hearing from companies like NVIDIA Corp. (NASDAQ: NVDA) and Broadcom Inc. (NASDAQ: AVGO).
The takeaway: MSFT looks different to traders and long-term investors. Traders likely positioned for earnings volatility and the institutional reaction that followed. For long-term investors, this does not appear to be a time for panic.
Analysts Are Still Bullish on MSFT Stock
The day after earnings, headlines noted analysts trimming their price targets for MSFT stock.
That's true, but context matters. In many cases the revised targets remain well above the Street's consensus price target of $597.41, which implies roughly 40% upside from the stock's price as of this writing.
That doesn't guarantee a 40% return, but it suggests Wall Street still sees meaningful upside even after trimming expectations. Viewed that way, the earnings sell-off looks more like a timing issue than a broken investment thesis.
MSFT Stock Drop Is More Likely a Pause Than a Reversal
In midday trading the day after the report, MSFT showed signs the sell-off was easing. That said, timing a stock's reversal is difficult in any environment—especially after a market-moving event like the company's earnings report.
MSFT had rallied roughly 10% in the five trading days before earnings; the sell-off erased those gains and pushed the stock down to levels not seen since May 2025.
That's where the potential opportunity may lie. Microsoft is now showing strong oversold signals, supporting the view that the price action after the report is more likely a pause in the recovery than a decisive reversal.
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