Earnings season is here, with a focus on top technology stocks like Microsoft Corporation (NASDAQ: MSFT). With a total return of over 16% in the last year and 155% in the last five years, Microsoft’s market cap of $3.76 trillion gives heavy exposure to passive index funds like SPDR S&P 500 ETF Trust (NYSEARCA: SPY) and Invesco QQQ (NASDAQ: QQQ).

Microsoft stock, up just over 20% in 2025, is on par with NVIDIA Corp. (NASDAQ: NVDA) and Meta Platforms Inc. (NASDAQ: META). However, trading at 39x earnings, its valuation surpasses historical averages, leading to debates on its potential overvaluation and technical outlook.

MSFT stock typically rises before earnings, but its performance afterward hinges on Azure’s performance. Azure concerns caused a 14% decline in January 2025, but an optimistic outlook led to a 37% gain in the last three months. Analysts estimate a 20%-22% growth in Azure’s cloud business.

Microsoft’s strong margins are expected to continue, supported by AI data center investments and operational efficiency efforts, including job cuts. Internal estimates project 19%-20% constant currency growth in costs of goods sold (COGS) versus 5% growth in operating expenses.

In addition to cloud computing, Microsoft’s collaboration with OpenAI has boosted revenue and earnings. With OpenAI’s partnership with Google Cloud impacting Microsoft Azure’s profits, investors await details on the potential impact as OpenAI expands its partnerships.

Microsoft stock closed at $505.67 on July 22, 7.5% below the consensus price target of $544.07. Analysts have raised their price targets, with Citigroup Inc. (NYSE: C) setting a new target of $613, joining other firms like Piper Sandler, Oppenheimer, and DA Davidson with $600 price targets for MSFT stock.

Read more at Nasdaq: Microsoft’s AI Bet Faces a Major Test This Earnings Season