Microsoft Crushes Earnings, What’s Next for MSFT Stock?

Key Points

• Microsoft reported strong third quarter earnings with a 17% year-over-year increase in earnings per share and a 13% increase in revenue.
• Cloud spending increased by 33%, with 16% attributed to AI infrastructure, reversing concerns about previous declines.
• Analysts have raised their price targets for MSFT stock, indicating potential for new highs.

Microsoft Corporation NASDAQ: MSFT stock shot up more than 10% in early trading the day after it delivered third quarter 2025 earnings that can rightly be described as a home run. The move in the stock has now erased all of the stock’s losses since February 2025. This is leading to the question of what’s next for MSFT stock.

The company delivered a strong beat on the bottom line, with earnings per share of $3.46, 7% higher than the $3.22 forecast. That number was also 17% higher year-over-year (YoY). On the top line, the results were also strong, with revenue of $70.07 billion coming in at 2.2% higher than forecast and 13% higher YoY.

Investors were paying particular attention to cloud spending. A key reason for the stock’s weakness in the last two months was an unexpected decrease in cloud spending. However, in this report, Microsoft reported a strong 33% increase in cloud spending, with 16% of that increase being attributed to acceleration in artificial intelligence (AI) infrastructure.

Furthermore, while the company reported lower sequential capital spending, it said it expects a sequential rise in capex spending in the fourth quarter, and it maintained its previously issued full-year guidance.

As Microsoft Goes, So Goes the Market

Buy-and-hold investors may believe that too much emphasis is placed on quarterly earnings. That's because earnings are largely backward-looking. However, after Microsoft reported a drop in cloud revenue in the prior quarter, investors came into this report cautiously optimistic. MSFT stock rose in the five days before earnings.

However, it dropped sharply ahead of the earnings as investors got spooked by the first reading of first-quarter GDP and an indication that inflation is rising. With expectations of a weak jobs report on May 2, the word stagflation is rearing its head.

So while the results by Microsoft weren’t completely unexpected, they were music to shareholders' ears. The rise in MSFT stock was the primary reason the Dow was positive the day after the report. And there’s reason to believe MSFT stock can go higher, particularly as the company says it is not forecasting any impact from tariffs.

Analysts are Raising Their Price Targets, Putting New Highs in Sight

One confirmation of bullish momentum is that analysts are wasting no time in raising price targets for MSFT stock. As of May 1, approximately a dozen analysts have raised their price targets for Microsoft. Many of those estimates are well above the previous all-time high, with Wedbush posting the highest price target of $515.

Is it Time to Sound the All Clear for Microsoft?

Long-term MSFT stock investors are undoubtedly cheered that Microsoft stock has made up its entire loss since March. The strong post-earnings move has pushed the stock above its 50-day simple moving average (SMA), which is seen as a sign of positive momentum.

It also puts the stock within about 7% of its all-time high in July 2024. Strong reports from other technology stocks such as Apple Inc. NASDAQ: AAPL would help build on that momentum.

What about the stock’s valuation? With the recent surge, Microsoft trades at 34.8x earnings. That makes the stock expensive compared to its historical averages. It could also mean that there will be less sentiment to move the stock higher in the short term. Investors should pay attention to the stock’s volume in the coming days for confirmation of the bullish trend.