Bank of America raises Microsoft stock forecast after earnings

Microsoft (MSFT) is a software giant, known for its Windows operating system and Office software suite. It is also a hyperscaler. The biggest driver for the stock is artificial intelligence.

The company's revenue comes from three different business segments. These include Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Microsoft's cloud computing platform is called Azure, and the main AI product is Microsoft 365 Copilot.

The stock is down approximately 16% year to date, at the time of writing, Thursday afternoon, April 30, according to Yahoo Finance. Meanwhile, the SPDR S&P 500 index (SPY) is up slightly above 5% in the same period.

The stock is tumbling following the company's Q3 earnings report on April 29, trading 4.6% lower near $405, with the most likely culprit being high capital expenditures (capex), which negatively impact free cash flow.

Other key news for the stock:

• Microsoft revised its partnership with OpenAI; it no longer has an exclusive license for its models. This isn't surprising after the company's absence from the latest OpenAI founding round.
• Microsoft made major leadership changes to improve its AI strategy, with the most important being the naming of Jacob Andreou as EVP for Copilot.
• The company launched Copilot Cowork in March for Frontier (early access program).

Key facts from Microsoft's earnings report

Microsoft's Q3 revenue increased 18% (up 15% in constant currency) to $82.9 billion.

Chairman and CEO Satya Nadella touted the company's AI growth during the earnings call.

"In knowledge work, it was another record quarter for Microsoft 365 Copilot seat adds, which increased 250% year-over-year, representing our fastest growth since launch. Quarter over quarter, we continue to see acceleration and now have over 20 million Microsoft 365 Copilot paid seats."

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The company's remaining performance obligations are growing and, according to its 10-Q Form, totaled $633 billion as of March 31, 2026, with the commercial portion at $627 billion.

The form included one caveat, however. "We expect to recognize approximately 30% of our total company remaining performance obligation revenue and 25% of our commercial remaining performance obligation revenue over the next 12 months and the remainder thereafter."

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Microsoft CFO Amy Hood provided guidance for Q4:

• Revenue should be between $86.7 billion and $87.8 billion.
• Expected capex will increase to more than $40 billion.
  
  Source: Microsoft Q3 earnings call

She added that the sequential increase in capex includes approximately $5 billion from higher component pricing and the impact of finance leases. Hood said that for calendar year 2026, she expects approximately $190 billion in capex, including approximately $25 billion from higher component pricing.

Bank of America raises Microsoft EPS estimates

Following the report's release in a research note shared with me, Bank of America analyst Tal Liani and his team updated their opinion on Microsoft stock.

The team noted that Azure revenue growth of 39% in constant currency beat the Wall Street consensus estimate at 38.2%. Analysts said revenue growth of 15% and EPS of $4.27 were also above Wall Street consensus estimates of 13.3% and $4.04, respectively.

Related: BofA resets Google stock price target after earnings smasher

Liani said CoPilot added 5 million paid users, increasing the total to 20 million and representing growth of 33% quarter over quarter or 250% YoY. He also noted that the 2026 capex guidance of $190 billion is $37 billion above Wall Street expectations.

A similar trend can be seen with other hyperscalers, who collectively increased capex by $50 billion, Liani added. He said he estimates 2026 hyperscaler capex at over $800 billion, and a path toward more than $1 trillion by 2027.

The team said approximately $25 billion of Microsoft's capex increase represents higher component pricing rather than pure volume expansion.

Analysts raised their Microsoft EPS estimates for 2026, 2027, and 2028 to $17.38, $19.19, and $22.36, respectively; from $17.19, $19.10, and $22.30, respectively.

Liani reiterated a buy rating for Microsoft stock and a price target of $500, based on a 24 multiple of his estimate for the price-to-earnings ratio for 2027. This is higher than the peer group, which is in the range of 18 to 22. He believes that sustained revenue growth and margin profile warrant this high multiple.

Analysts noted downside risks for Microsoft:

• Near-term gross margin pressure
• AI applications and model providers that may innovate at a faster rate than Microsoft
• The highly cyclical nature of enterprise application spending

Related: Bank of America reassesses Nvidia stock, sets new forecast

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This story was originally published April 30, 2026 at 3:03 PM.