Microsoft sends Wall Street a $625 billion message

Wall Street is not upset due to the fact that Microsoft (MSFT) staggered during net season.

Instead, Wall Street is disappointed that Microsoft did not execute arsenic powerfully arsenic the marketplace expected, peculiarly erstwhile it comes to Azure upside successful a marketplace that has gone brainsick for AI.

That reaction, according to Morgan Stanley, misses the point.

“Yes, Azure missed Street expectations by 1 point, but astatine 21x CY27 EPS, the valuation appears to miss the bigger picture,” analysts wrote successful a note.

On astir each metric, Microsoft’s fiscal second-quarter results delivered connected respective accounts:

• Revenue accrued 17% twelvemonth implicit year.

• Operating margins expanded astir 160 ground points to 47%.

• Earnings per stock are up 21% connected a constant-currency basis.

• Results excluded around $10 cardinal of OpenAI-related gain.

Azure, however, grew 38% twelvemonth implicit twelvemonth successful changeless currency, beating Microsoft’s ain guidance by a point, but it fell abbreviated of the 40%-plus growth galore investors baked into the results.

In the end, that 1 metric ended up looming ample implicit everything else.

Morgan Stanley believes investors are focusing connected the incorrect target.

Microsoft's residual show obligations, oregon contractual aboriginal income, jumped 110% from the erstwhile twelvemonth to $625 billion.

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Even without the OpenAI-related contracts, RPO is up 28%, translating into broad-based commercialized demand.

Here’s wherefore it volition substance to the mean investor.

• Commercial customers is astir 77% of Microsoft’s revenue.

• Bookings usually travel earlier revenue, not aft it.

• Backlog durability backs forthcoming maturation visibility.

What that means is that adjacent if Azure optics look messy, the pipeline is getting amended and better.

Microsoft executives were unfastened astir the factors hindering Azure's growth.

CFO Amy Hood said lawsuit request is acold outstripping supply, particularly erstwhile it comes to advanced AI GPUs, Business Insider reports.

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She besides said that if Microsoft had fixed each of its further GPU capableness to Azure, the stated emergence would person been more than 40%.

Microsoft is alternatively purposefully putting constricted resources toward:

• Microsoft 365 Copilot

• GitHub Copilot

• Security Copilot and interior AI research

Now, that does unit near-term Azure maturation metrics. However, for Microsoft, it strengthens Microsoft’s long-term AI organisation and monetization strategy.

Morgan Stanley is advising marketplace watchers to spot this arsenic strategic discipline, not execution risk.

Microsoft said it present has 15 cardinal paying Microsoft 365 Copilot seats, portion it has much than 450 cardinal concern users.

The spread is wherefore Wall Street is truthful impatient. It besides outlines the imaginable upside.

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Three cardinal signs of adoption person emerged.

• Daily progressive users are up 10x twelvemonth implicit year.

• 80% of CIOs expect to usage Copilot wrong the adjacent 12 months, per Morgan Stanley surveys.

• ARPU expansion is becoming the superior maturation lever arsenic spot maturation slows.

To enactment it simply, monetization is inactive successful its aboriginal stages, but the utilization curve is going successful the close direction.

At astir 21x Morgan Stanley’s 2027 net estimate, the steadfast argues Microsoft’s valuation fails to reflect respective factors.

• Long-lasting maturation astatine the top

• Revenue visibility based connected backlog

• The anticipation for semipermanent borderline growth

Morgan Stanley maintained its overweight standing and $650 terms target, saying that erstwhile investors recognize Azure's problems are with proviso and not demand, their feelings volition change.

The main takeaways are clear.

• This quarter, Microsoft didn't fto america down.

• Wall Street simply hasn't made up its caput astir however agelong it tin wait.

Related: Microsoft tests Windows 11 alteration that could reshape your desktop

This communicative was primitively published by TheStreet connected Feb 1, 2026, wherever it archetypal appeared successful the Investing section. Add TheStreet arsenic a Preferred Source by clicking here.