Does Azure AI Growth Make Microsoft Stock a Buy Ahead of Q2 Earnings?

Microsoft’s MSFT second-quarter fiscal 2026 results, scheduled to be reported on Jan. 28, are poised to showcase the company's continued momentum in cloud computing and AI infrastructure.

The tech giant's Azure cloud platform remained the primary driver of growth expectations, despite capacity constraints expected to persist through fiscal year-end. Management projected approximately 37% revenue expansion in constant currency (cc) for the quarter, positioning the Intelligent Cloud segment as the centerpiece of Microsoft's AI transformation strategy.

The Intelligent Cloud segment is expected to have remained Microsoft's primary growth engine, with revenue projections between $32.25 billion and $32.55 billion, representing growth of 26% to 27%. The Zacks Consensus Estimate for this segment is pegged at $32.4 billion, indicating growth of 26.9% from the figure reported in the year-ago quarter.

The technology giant's strategic investments in AI infrastructure and expanding partner ecosystem are expected to have created multiple tailwinds despite facing competitive pressure in the AI space from tech giants, including Alphabet's GOOGL Google, Nvidia NVDA and Amazon AMZN.

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Landmark Partnership Strengthens Azure's AI Foundation

The quarter commenced with Microsoft and OpenAI finalizing a restructured partnership agreement on Oct. 28, securing a substantial $250 billion commitment for Azure services from the AI leader. This deal extended Microsoft's intellectual property rights through 2032 and clarified governance structures around artificial general intelligence development, providing long-term revenue visibility that is likely to have contributed to Azure's growth trajectory during the quarter. The expanded commitment reinforced Azure's position as OpenAI's exclusive cloud infrastructure provider for API workloads, strengthening the platform's AI infrastructure monetization.

Microsoft Ignite Unveils Comprehensive AI Ecosystem

Microsoft Ignite conference delivered a cascade of Azure-focused innovations that positioned the cloud platform for accelerated enterprise adoption. The company rebranded Azure AI Foundry as Microsoft Foundry and expanded its model ecosystem by integrating Anthropic's Claude models, making Azure the only cloud platform offering both Claude and OpenAI's GPT models. This strategic move is likely to have attracted developers seeking model diversity and enhanced Azure's competitive differentiation against Amazon Web Services and Google Cloud during the quarter.

Microsoft introduced Azure Copilot agents with specialized capabilities spanning migration, deployment, observability, optimization, resiliency, and troubleshooting, addressing critical enterprise workflow automation needs. The launch of Foundry Control Plane provided organizations with real-time security and lifecycle management across AI platforms, potentially accelerating enterprise AI adoption on Azure. These announcements, combined with multi-agent orchestration capabilities and Reinforcement Fine-Tuning support for GPT-5, are likely to have driven increased Azure consumption as enterprises expanded their AI implementations.

Infrastructure enhancements also strengthened Azure's foundation during the quarter. The company unveiled Azure Cobalt 200 ARM-based servers and the latest Azure Boost generation, delivering significant performance improvements, including up to 20 gigabytes per second remote storage throughput, up to one million input/output operations per second, and network bandwidth reaching 400 gigabytes per second. These infrastructure advancements are likely to have supported Azure's capacity expansion efforts while improving cost efficiency for AI workloads.

Copilot Expansion and Database Innovations

December brought the launch of Microsoft 365 Copilot Business at an accessible $21 per user per month price point, targeting small and medium-sized businesses and potentially driving incremental Azure consumption through increased Copilot adoption. The general availability of SQL Server 2025 and the introduction of Azure HorizonDB in private preview expanded Azure's database offerings, addressing mission-critical application requirements.

The combination of expanded OpenAI commitments, comprehensive Ignite announcements, and infrastructure enhancements is likely to have supported Azure's growth trajectory throughout the quarter, positioning the cloud platform for sustained momentum in the AI-driven enterprise market.

 MSFT currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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