Microsoft: The Future of AI and Cloud Computing

Microsoft is expected to see significant growth in its AI business, with over 70% of its existing customers using AI features within three years. This is driven by big companies adopting AI to work smarter. Wedbush predicts Microsoft will generate $25 billion in new annual sales by 2026, leading to a $4 trillion valuation. The investment bank has a price target of $600 a share.

Microsoft (MSFT) is poised for significant growth in its artificial intelligence (AI) business, with over 70% of its existing customers expected to adopt AI features within the next three years. This growth is driven by large enterprises adopting AI to work more efficiently and innovate. Wedbush Securities predicts that Microsoft will generate $25 billion in new annual sales by 2026, which could lead to a $4 trillion valuation. The investment bank has a price target of $600 a share [1].

Microsoft's AI business, centered around its Azure cloud computing infrastructure, has shown robust growth. In the last quarter, Azure revenue grew by 35% year over year in constant currency, surpassing analyst estimates. For fiscal Q4, the company predicted Azure growth of 34% to 35% in constant currency [1]. Morgan Stanley analyst Keith Weiss notes that Azure revenue is expected to grow by mid-30s percentage points in fiscal Q4 and into the first half of fiscal 2026 [1].

Microsoft's AI strategy is centered on its Azure AI Foundry and Copilot ecosystem, which enable enterprises to automate tasks, enhance decision-making, and unlock productivity gains. Microsoft 365 Copilot has been adopted by 3 million companies, delivering a 175% year-over-year revenue growth in its subscription model [1]. Case studies from Lumen and UBS highlight the tangible return on investment (ROI) of these tools, with Lumen achieving a 50% reduction in sales preparation time and UBS saving 2,300 person-hours annually [1].

The integration of AI into core products like GitHub Copilot and Azure OpenAI creates a flywheel effect, driving increased Azure consumption and further innovation. This virtuous cycle is evident in Azure's 33% year-over-year revenue growth in Q3 2025, with AI services contributing 16 percentage points to that increase [1]. According to IDC, every $1 invested in generative AI yields a $3.70 return, a metric that underscores the potential of Microsoft's AI strategy [1].

Microsoft's earnings report on July 30 will focus on its Azure cloud computing business, with analysts estimating common currency growth of around 20%-22%. Investors will be closely watching the company's guidance for Azure growth and its capital expenditure plans [2]. Additionally, Microsoft's evolving relationship with AI partner OpenAI will be a key focus area for the earnings report [2].

Microsoft stock is currently trading at a higher valuation than historical averages, sparking debate about its affordability. However, the company's strong earnings growth and AI-driven innovations make it a compelling investment for many financial professionals [3]. The stock has shown resilience, with a 16% total return in the last year and a 155% gain in the last five years [3].

References:
[1] https://www.investors.com/news/technology/microsoft-stock-msft-fiscal-q4-earnings-preview-azure-growth/
[2] https://www.storyboard18.com/advertising/sundar-pichai-says-ai-overviews-now-has-over-2-billion-monthly-users-as-google-reports-standout-quarter-76475.htm
[3] https://www.ainvest.com/news/microsoft-ai-cloud-computing-businesses-center-stage-earnings-report-2507/