Microsoft Corp. shares fell roughly 6% in after-market trading even after the company posted quarterly numbers that exceeded analyst expectations for revenue, earnings per share and operating margins. The market reaction followed otherwise solid financial metrics, underscoring investor sensitivity to growth trajectories and valuation.
On a trailing-12-month basis the software and cloud giant generated $293.81 billion of revenue, equal to 15.59% year-over-year growth. The company’s market capitalization stood at approximately $3.58 trillion, and InvestingPro data cited in the report indicates Microsoft is trading close to its Fair Value estimate. Those valuation signals suggest investors are pricing in a high premium for the company’s future prospects.
Analyst responses to the results varied. RBC Capital kept its Outperform rating on the stock and held a $640.00 price target after the earnings release. RBC characterized the quarter as solid but noted the results did not fully meet the market’s elevated expectations. The bank also pointed to Microsoft’s valuation multiples - a price-to-earnings ratio of 34.12 and a PEG ratio of 2.11 - as evidence that the stock commands a rich earnings multiple relative to its growth pace.
Cloud performance - a primary driver of investor interest in Microsoft - showed Azure revenue growth of 39% year over year, or 38% when measured in constant currency. RBC said those figures were in line with buy-side expectations. The near-parity between Azure’s reported growth and investor forecasts appears to have dulled enthusiasm among market participants who had been hoping for a stronger acceleration.
Management highlighted operational discipline and efficiency improvements that helped offset higher spending on artificial intelligence infrastructure during the quarter. Those cost-management gains were cited as a factor supporting margin expansion even as the company makes larger investments to support AI capacity.
RBC also noted that Microsoft’s AI monetization is expanding and that much of the incremental AI capacity is already contracted, and the firm reiterated Microsoft as its top large-cap pick on that basis. The note emphasized potential continued upside for both revenue growth and margins.
Separately, Microsoft’s second-quarter results included $81 billion of revenue, representing 17% year-over-year growth and topping analyst expectations by about 1%. Non-GAAP earnings per share were $4.41 - up 23% from the prior year and roughly 5% above consensus estimates. These quarterly results attracted follow-up analyst action.
DA Davidson reiterated a Buy rating and maintained a $650 price target in the wake of the quarterly report, citing the company’s strong performance. By contrast, several other firms adjusted targets lower. Goldman Sachs, Piper Sandler and KeyBanc trimmed price targets to $600, signaling caution tied to capital expenditure trends and Azure’s growth trajectory. Piper Sandler specifically observed that Azure grew 38%, which it said was marginally above company guidance but below investor hopes; the firm projected similar growth in the next quarter. KeyBanc described the next-quarter outlook for the cloud as "even less inspiring."
Stifel diverged from those cuts, raising its price target to $540 while acknowledging constraints in capacity that have affected Azure, and maintained a positive stance on the stock.
The combination of premium valuation multiples, cloud growth that met - but did not exceed - expectations, and mixed analyst target adjustments appears to have driven the market’s negative short-term reaction despite otherwise healthy revenue, profit and margin outcomes. Investors and market participants watching unit economics, capacity utilization and near-term Azure momentum are influencing the range of analyst views that followed the earnings release.
Contextual takeaway - Microsoft delivered better-than-expected top-line and bottom-line results alongside margin improvements, but Azure growth tracking investor forecasts and already-rich valuation multiples were central factors in the post-market sell-off.