After a strong start to FY26, can Microsoft (MSFT) maintain the momentum in Q2?

Microsoft Corporation (NASDAQ: MSFT) entered fiscal 2026 on a high note, reporting strong revenue and earnings growth for the first quarter. The company is rapidly expanding its global cloud and AI infrastructure as it sees a massive opportunity in those areas. Lately, there has been a sharp increase in the demand and adoption of Microsoft’s AI platform and Copilot family.

Bullish View

The tech giant is preparing to report its second-quarter FY26 results on Wednesday, January 28, at 4:00 pm ET. On average, analysts following the business forecast earnings of $3.86 per share for the quarter, on revenues of $80.28 billion. In the corresponding quarter of FY25, the company earned $3.23 per share on revenues of $69.63 billion. Notably, earnings beat estimates in each of the trailing 13 quarters.

The stock hit a new high ahead of the first-quarter report in October 2025, with valuation crossing the $4-trillion mark at one point. However, it pulled back soon after the announcement, reflecting investor concern over the huge capital expenditure, particularly in AI infrastructure. Since then, the shares have struggled to regain momentum and slid more than 15%. The downturn extended into this year, and the stock has underperformed the S&P 500 so far. Analysts are generally bullish on MSFT’s prospects, with their 12-month projection as of this week indicating a double-digit gain.

Q1 Results Beat

In the first three months of fiscal 2026, Microsoft’s revenue jumped 18% year-over-year to $77.7 billion, exceeding estimates. In constant currency, revenue grew 17%. Net income rose to $27.7 billion or $3.72 per share in the first quarter from $24.7 billion or $3.30 per share in Q1 2025. The latest number came in above analysts’ forecasts. For the second quarter, management expects revenue to be in the range of $79.5 billion to $80.6 billion, representing a 14-16% year-over-year increase. Operating margins is expected to be relatively flat year-over-year and down sequentially in Q2.

Microsoft’s CEO Satya Nadella said in the Q1 earnings call, “We have the most expansive datacenter fleet for the AI era, and we are adding capacity at an unprecedented scale. We will increase our total AI capacity by over 80% this year, and roughly double our total datacenter footprint over the next two years, reflecting the demand signals we see. Just this quarter, we announced the world’s most powerful AI datacenter, Fairwater in Wisconsin, which will go online next year and scale to two gigawatts alone. And we have deployed the world’s first large-scale cluster of NVIDIA GB300s.”

Agentic Shift

A few months ago, the company expanded its partnership with OpenAI, deepening its role as both investor and strategic partner. Microsoft is moving beyond conversational chatbots to autonomous agents that can take initiative, make decisions, and manage complex, multi-step tasks. Azure has become the preferred cloud platform for AI applications as well as for hosting, data storage, and analytics.

Signaling a recovery ahead of next week’s earnings, Microsoft shares opened higher on Thursday and were trading up 1.4% in the afternoon. However, the stock remained below its 52-week average value of $466.69.