Microsoft Blasts Past Earnings - What's Next for MSFT?

Microsoft Corp. (NASDAQ: MSFT) is reminding investors why it’s a market bellwether. Shares are up more than 6% after a blowout earnings report driven by artificial intelligence (AI) and cloud growth.

Investors who hold Microsoft stock in their portfolio have been well rewarded. The stock is up 21% year-to-date and has gained nearly 30% since the rally began in April.

While the report didn’t give any indication that growth was slowing down, the stock is trading at a generous premium, even among technology stocks. However, this may be a case where the premium is justified.

Microsoft Beat Elevated Expectations

A common risk for a stock like Microsoft is the pressure to beat high expectations. After a strong earnings report in April, the bar was high.

It’s safe to say Microsoft cleared the bar. Earnings per share (EPS) of $3.65 beat expectations of $3.35 and were 23% higher year-over-year (YOY). This was Microsoft’s fourth quarter report for its 2025 fiscal year, and the company’s full-year EPS of $13.64 was 15% higher than the $11.81 it reported in its fiscal year 2024.

A similar story was evident on the top line. Microsoft delivered $76.44 billion in revenue, which beat expectations for $73.81 billion. The number was also 18% higher YOY.

Microsoft also reported 39% growth in its Azure cloud computing business. That was up from 34.4% in FY 2024. However, for the first time, the company gave investors a dollar number for Azure revenue. In this case, that was $75 billion for the full year. This is a notable milestone that underscores the scale of its cloud business.

Investors were also focused on Microsoft's comments about its capital expenditures in AI. The company reaffirmed its prior forecast for $60 billion in capex spending, with AI being the primary driver for that spending.

Wedbush Just Raised Its Price Target... Again

Dan Ives of Wedbush has been among the most bullish analysts on Microsoft. The company’s earnings report has done nothing to tame his bullish outlook. Ives raised his price target for MSFT stock to $625 from $600. That’s a 15% gain from the stock’s $538.96 price as of this writing.

How to Approach MSFT Stock?

Many fund investors already own shares of MSFT stock within their funds. That supports the bullish argument that the stock has a high floor. However, with the stock near an all-time high and having just achieved a $4 trillion market capitalization, it may be difficult for investors on the outside to take a long position.

MSFT stock remains in the sustained uptrend, marked by higher highs and higher lows, that began in late April. The post-earnings surge has pushed the stock above prior resistance levels. However, there are a couple of signs that momentum may be slowing.

Specifically, the MACD line is above the signal line, but the gap is narrowing. Both lines are high, but declining, which frequently indicates slowing momentum. The MACD signal is supported by the relative strength indicator (RSI), which is over 70. Any reading over 70 typically signals overbought conditions.

That means investors who want to take a long position or buy the dip may have an opportunity. In this case, investors should wait for the RSI to dip below 65 and/or the MSFT stock price to retest the 50-day simple moving average (SMA).

A bullish call spread could be an option for traders who want to take advantage of this price action right now. In this case, traders would buy one $510 call and sell one $540 call. This would be a profitable trade if MSFT stock pushes higher or holds steady.

It also allows traders to take advantage of elevated implied volatility near these new highs.

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The article "Microsoft Blasts Past Earnings — What’s Next for MSFT?" first appeared on MarketBeat.