Microsoft‘s (MSFT 3.97%) stock has been on a roller-coaster ride to begin 2026. From the beginning of the year until March 27, Microsoft lost nearly a quarter of its value, but since then, it has surged nearly 21%. Still, it’s down more than 8% year to date (as of April 22).
Much of Microsoft’s struggles stemmed from investors’ concerns about two things: its massive spending plans and a potential slowdown in the growth of its cloud platform, Azure.
When Microsoft announces its fiscal year third-quarter (FY Q3) earnings on April 29, it has a chance to be the most important tech event of the year. Not only will it allow Microsoft to shift the narrative, but it will be a peek into the broader artificial intelligence (AI) ecosystem.
Image source: The Motley Fool.
What investors are looking for during Microsoft’s earnings
One of the first things investors will want to see is if Microsoft’s AI spending spree (it spent $37.5 billion in its FY Q2) has translated into worthwhile revenue. Making money has never been an issue for Microsoft — it made $81.3 billion last quarter, up 17% year over year (YoY) — but there are concerns about spending growth outpacing profit growth.
The next time to keep an eye on will be Azure’s growth. In the previous quarter, Azure revenue grew 39% YoY, but its growth was restricted by its $80 billion backlog. (Microsoft’s total backlog is $625 billion.) It can’t realistically offload that backlog in a quarter, but comparing Azure’s growth to changes in its backlog can provide insight into how much supply limitations are potentially hurting growth.
Lastly, investors will want to see how much Microsoft plans to spend in the upcoming quarter(s). I don’t think there’s a magic number that’s “too much,” because it will likely depend on how current spending has translated into revenue. If it’s translating well, I’m sure investors will be more lenient.
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How Microsoft gives an inside look into the AI ecosystem
Microsoft has its hands in three key phases of the AI pipeline: infrastructure, cloud computing, and software applications.
From an infrastructure perspective, Microsoft’s current and future spending will impact Nvidia expectations because Microsoft is its largest customer. If Microsoft maintains its ambitious spending plans, it suggests AI chip demand remains high. However, a retraction in spending plans could signal that the build-out phase has plateaued.
It seems the market is at the point where it cares more about how AI is making money versus what AI can do. Playing a key part in both the infrastructure phase (where AI has been over the past couple of years) and the application phase (what’s happening now as companies try to monetize it) at its scale puts Microsoft under a microscope.
If Microsoft is showing the transition is happening profitably, it’s an essential “proof of concept” for a whole sector. That’s why these earnings are so important for tech as a whole.