Microsoft (MSFT) is set to report its second-quarter fiscal 2026 earnings on Jan. 28. Despite strong financial results, MSFT stock has struggled recently due to rising capital expenditures related to AI and cloud infrastructure expansion. Q1 capex of $34.9 billion exceeded guidance, driven by strong demand for AI and cloud capacity, particularly in Azure.

Investors are cautious about MSFT stock due to elevated capex, but technical indicators suggest room for growth. Microsoft’s 14-day RSI at 50 indicates potential rebound opportunities post-earnings. Derivatives markets project a moderate 4.3% post-earnings move, lower than the average 5.2% move in previous quarters.

In Q2, Microsoft expects revenue between $79.5 billion to $80.6 billion, reflecting 14% to 16% YOY growth driven by cloud and AI. Cloud revenue in the prior quarter reached $49.1 billion, up 26% YOY, with Intelligent Cloud revenue at $30.9 billion, up 28% YOY. Azure revenue saw a 40% YOY increase.

Looking ahead to Q2, management anticipates Intelligent Cloud revenue of $32.25 billion to $32.55 billion, indicating 26% to 27% YOY growth. Azure’s revenue is expected to rise around 37% on a constant-currency basis, showcasing strong demand for cloud and AI services. Operating margins are forecasted to be flat YOY, with increased spending on GPUs and CPUs pressuring margins.

While investments in GPUs and CPUs may impact margins, Microsoft’s strong top-line growth could drive bottom-line results. Analysts forecast earnings of $3.88 per share, representing over 20% YOY growth. Microsoft has a history of outperforming expectations, delivering substantial earnings beats in the past four quarters.

Amid growing demand for cloud and AI services, Microsoft is well-positioned for sustained growth. Expansion of capacity may alleviate supply constraints and support revenue growth. Though investment scale may weigh on margins, high-margin businesses could drive profitable growth. Analysts maintain a “Strong Buy” consensus rating on MSFT stock.

Read more at Yahoo Finance: Microsoft Reports Q2 Earnings Jan. 28. Is MSFT Stock a Buy Before Then?