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No Hangover: Revisiting Microsoft One Week After Earnings
Written by Chris Markoch. First Published: 8/7/2026.
Key Points
- Microsoft shares surged more than 25% after its July 29 earnings report, driven by 18% revenue growth and 43% Azure growth that eased AI monetization concerns.
- Long-term power agreements with Chevron and Constellation Energy suggest that demand for Microsoft's AI data center buildout is real, diversified, and multi-year in nature.
- Microsoft's free cash flow fell 23% year over year amid rising capital expenditures, raising valuation concerns even as the company maintains positive cash flow.
- Special Report: Everyone wanted SpaceX. Smart money wants this.
Microsoft Corporation (NASDAQ: MSFT) reported earnings on July 29, and the stock has been on a tear ever since. The share price is up more than 25% since the report and turned positive for the year on Aug. 5.
The rally is a relief to shareholders who watched MSFT drop nearly 30% between October 2025 and March 2026. The company seemed to be at the center of nearly every headwind affecting technology stocks.
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Marc Chaikin, founder of Chaikin Analytics, says two forces - AI disruption and fracturing global trade - are triggering a historic wealth transfer already underway in 2026. Household names like Intuit (-57%), Boston Scientific (-49%), and Tractor Supply (-40%) are cratering, while lesser-known companies like Sandisk (+573%) and Rackspace (+444%) surge.
Chaikin has identified specific stocks he believes investors should sell before they fall further - and the names may surprise you. He's also pinpointing a company tapped as Nvidia's self-driving partner and a potential AI megadeal that could split into three high-growth stocks.
Stream his free presentation to get every buy and sell recommendation with no membership or credit card required.
Watch Marc Chaikin's free presentation and get his full buy-and-sell list todayConcern over sustained hyperscaler spending? Check.
Concern over too much hyperscaler spending? Check.
Concern over the SaaS-pocalypse created by AI? Check.
Concern over monetizing AI? Check, check, and check.
The company’s Q4 2026 earnings report addressed all the issues concerning investors and is changing the conversation around AI. But with the stock posting such strong gains in the week after earnings, some investors are questioning whether the stock is due for a pullback.
Microsoft's Earnings Reignite the AI Growth Story
The numbers behind the rally help explain why. Microsoft posted fiscal fourth-quarter revenue of $90 billion, up 18% year over year, while Azure revenue climbed 43%. Full fiscal 2026 revenue topped $331 billion.
Microsoft 365 Copilot crossed 30 million paid seats, and the company's commercial remaining performance obligation, essentially its contracted backlog, grew sharply.
That combination gave investors something they hadn't had in months: proof that AI spending is translating into revenue.
Is MSFT Stock Moving Too Far, Too Fast?
The cautious argument is that MSFT doesn’t typically make parabolic moves like this. The stock has made moves of 25% or more in the last five years, but those gains usually came over a month or longer. The strength of this move in such a short time is an outlier.
The rebuttal is that the depth and duration of the stock’s pullback were atypical. Many analysts would also have said it wasn't merited. There’s also the technical fact that, based on the relative strength index (RSI), MSFT isn't overbought yet.
Still, believing this time is different is rarely a good way to build an investing strategy. MSFT may be due for a pullback. But the long-term outlook remains strong, which is why investors should welcome a pronounced dip in MSFT and be ready to buy it.
Microsoft Is Locking in the AI Infrastructure Buildout
In addition to its own strong earnings report, Microsoft is getting a halo effect from other reports. For example, Chevron (NYSE: CVX) reported earnings on July 31. A highlight of the report was Project Kilby, a 20-year, take-or-pay power agreement with Microsoft covering 2.67 gigawatts of behind-the-meter capacity in West Texas.
Chevron said the project is moving toward a final investment decision later this year and expects mid-teens returns on the investment. CEO Mike Wirth framed the broader quarter as one built on consistent strategy and capital discipline, while Chevron's New Energies president, Jeff Gustavson, noted that few competing data center power projects have locked in long-term customer commitments as Kilby has.
Chevron isn't speculatively building power capacity and hoping a hyperscaler shows up later. Microsoft is already the counterparty on a two-decade contract, which is about as far from speculative as an energy deal gets.
Chevron isn't alone in this. Constellation Energy (NASDAQ: CEG) has its own long-term power arrangement tied to Microsoft. The deal is anchored by the restart of the Crane Clean Energy Center, which is under a 20-year agreement to supply Microsoft's data centers once it returns to service.
Between Chevron's gas-fired capacity and Constellation's nuclear restart, Microsoft is locking down power from two very different corners of the energy sector. That is a sign that the demand behind its AI buildout is broad enough to require diversified supply rather than a single bet.
Strong AI Spending Comes With a Free Cash Flow Trade-Off
Microsoft delivered $19.6 billion in free cash flow (FCF) in its latest quarter, down 23% year over year (YOY). That result also repeats a pattern that was in place in the third quarter.
The good news is that Microsoft continues to maintain positive FCF. That's the concern, perhaps overstated, with a company like Oracle (NYSE: ORCL) that is taking on debt to support its AI infrastructure spending, as well as companies like Alphabet (NASDAQ: GOOGL) that reported negative FCF.
The bad news is that this makes MSFT look expensive under some discounted cash flow (DCF) models that prioritize FCF. That's the opposite of what fueled the stock’s rally in 2025.
What Will Drive Microsoft Stock From Here?
Microsoft's own guidance adds another layer to the debate. Management now expects roughly $175 billion in fiscal 2027 capital expenditures, and it's changing how it accounts for some of that spending.
Data centers and office buildings will now be depreciated over 25 years instead of 15, and more future leases will be booked as operating leases rather than finance leases. That's an accounting shift, but it will affect how the FCF picture looks going forward. It's worth watching whether analysts treat it as a genuine improvement or as a way to flatter the numbers.
For investors, the setup is straightforward, even if the stock's next move isn't. The Chevron and Constellation deals suggest the demand side of the AI story is real and multi-year in nature. The FCF trend suggests the cost side is real, too, and it isn't going away next quarter.
Both things can be true at once and probably are. Balancing those truths, rather than focusing on any single number, is likely to define how MSFT trades over the next two quarters.
A Sweet Beat and a Wearables Rally Came With Reasons to Pause
Authored by Dan Schmidt. Posted: 8/3/2026.
Key Points
- Garmin and The Cheesecake Factory both delivered strong earnings beats and raised guidance, sending their shares sharply higher this year.
- Cheesecake Factory's comp sales growth was partly driven by a non-recurring loyalty app promotion, and its stock trades at a premium with limited analyst upside.
- Garmin's second-half guidance implies margin contraction due to fading tariff refunds, rising memory costs, and a declining Outdoor segment despite fitness growth.
- Special Report: Everyone wanted SpaceX. Smart money wants this.
Two of the cleanest earnings beats of the quarter came from a pair of under-the-radar sources: Garmin Ltd. (NYSE: GRMN) and The Cheesecake Factory Inc. (NASDAQ: CAKE). Both companies beat estimates, raised guidance and saw significant stock price gains following their releases.
But even the cleanest beats often come with caveats, and these two companies offered hints during their conference calls that the party may be entering its “turn the music down” stage. Analysts and investors are now chasing the tape, and some portfolio trimming may be in order following these massive gains.
Cheesecake Factory: Comp Growth Juiced by Non-Recurring Loyalty Rewards
Sell these "safe" blue chips immediately (Ad)
Marc Chaikin, founder of Chaikin Analytics, says two forces - AI disruption and fracturing global trade - are triggering a historic wealth transfer already underway in 2026. Household names like Intuit (-57%), Boston Scientific (-49%), and Tractor Supply (-40%) are cratering, while lesser-known companies like Sandisk (+573%) and Rackspace (+444%) surge.
Chaikin has identified specific stocks he believes investors should sell before they fall further - and the names may surprise you. He's also pinpointing a company tapped as Nvidia's self-driving partner and a potential AI megadeal that could split into three high-growth stocks.
Stream his free presentation to get every buy and sell recommendation with no membership or credit card required.
Watch Marc Chaikin's free presentation and get his full buy-and-sell list todayThe stock chart of The Cheesecake Factory looks more like that of a next-generation semiconductor company than a restaurant chain with fewer than 500 locations. Shares are up more than 100% year to date (YTD), including a gain of more than 25% in the last month alone. And earnings, not hype, have fueled the impressive run.
The latest quarter was another slice of sweetness for CAKE, following its impressive performance in Q1. The Q2 2026 numbers released on July 28 showed year-over-year (YOY) revenue growth of 7.7% and earnings per share (EPS) growth of 19.5%. It was the company’s first-ever $1 billion sales quarter, and management raised both full-year and Q3 revenue guidance. Open-and-shut case, right? Not exactly.
Second-quarter comparable sales grew 5.8%, following a 1.6% advance in Q1. That’s an impressive figure, but management implicitly called out the mix: 3.0% came from pricing and 2.8% from traffic. Management noted that traffic was driven by the revamped Cheesecake Rewards app, which offered new users a free piece of cheesecake. Loyalty rewards programs are often effective at driving repeat business, but a promotion-driven initial surge isn’t sustainable. Now that the promotion has been redeemed, app-driven traffic is likely to decline toward a more sustainable baseline, a factor that must be incorporated into projections for the next few quarters, especially if food inflation remains sticky.
Additionally, the Street is simply running out of room. Only Argus Research has a price target above CAKE’s current market price, while the consensus target of $79.81 represents downside of more than 20%. The stock already trades at a premium to its industry, at 24 times forward earnings versus the hospitality average of 17 times. That premium has also coincided with recent insider selling.
Garmin: Projecting Margin Contraction in the Second Half of 2026
Garmin has enjoyed a second life after GPS thanks to its assortment of wearables and fitness watches. The stock is up more than 40% YTD, with 20% of that gain occurring in the last week following its Q2 2026 earnings surge. The company handily exceeded top- and bottom-line expectations in Q2, growing revenue 11.4% YOY, while the fitness segment generated 25% YOY sales growth. Garmin raised its full-year revenue and EPS guidance to $8.01 billion and $10 per share, respectively.
However, a breakdown of the company’s second-half expectations reveals subtle hints that margin growth is waning. Implied second-half revenue of $4.28 billion represents 9.8% YOY growth, with an expected operating margin of 26.3%. That would be lower than the 27.6% operating margin the company earned during the same period last year. There are two key reasons for the expected margin decline:
Tariff refunds totaled $21 million, adding 100 basis points to the company’s gross margin. Tariff refunds are a non-recurring line item, so this one-time margin boost will fade in the coming quarters.
Garmin products require many of the same high-speed memory components that AI hyperscalers are consuming, particularly NAND and DRAM. Management flagged elevated memory costs as a potential margin drag for the rest of the year and into 2027.
Another potential red flag is the Outdoor segment’s performance, which has traditionally been the margin driver supporting the company’s other segments. Outdoor revenue dipped 2% YOY in Q2 to $482 million, a moderately concerning decline given that the segment generated $2.05 billion in fiscal 2025 and posted an operating margin above 34%. Fitness is now the growth driver, but that space includes fierce, well-funded competitors such as Apple Inc. (NASDAQ: AAPL) and Oura Health.
Much like CAKE shares, analysts are now chasing the tape with GRMN as well. Following the earnings release, Barclays and Morgan Stanley raised their GRMN price targets to $297 and $289, respectively. The Morgan Stanley target has already been surpassed, and the stock is currently about 1% below Barclays’ target. Both management and the Street are signaling that the upside is flattening, suggesting that trimming rather than accumulating is the best course of action.
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