Microsoft Corporation (NASDAQ:MSFT) is seeing renewed momentum in its crucial cloud business, primarily fueled by robust demand for security services within Azure.
This strength comes as the tech giant prepares for its fiscal first-quarter 2026 earnings release on October 29, 2025, and points toward a future requiring significantly higher capital expenditure.
Upbeat Forecasts Ahead of Earnings
Reflecting this optimism, Bank of America Securities analyst Brad Sills maintained a Buy rating on Microsoft, accompanied by a price forecast of $640.
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Channel partners report a consistent pace of deal activity and increasing enterprise investment in AI and data infrastructure, signaling enduring corporate confidence in Microsoft’s central role in technology roadmaps, Sills noted.
The analyst said most partners reported results that were inline or better, supporting his expectation for up to 1% upside to the $77 billion revenue estimate — up 18.2% year-over-year (16.2% in constant currency or cc).
He expects Azure growth of 39% (38% cc) versus a base case of 38% (37% cc), noting that while Azure's performance was broadly inline, security strength offset some softness in workloads affected by capacity constraints and customers taking more time to build long-term AI roadmaps.
Sills views both factors as positive for Microsoft's deeper enterprise integration.
The analyst projects Productivity and Business Processes (PBP) growth of 22.7% (21.7% cc) versus a 22.2% (21.2% cc) base case, driven by steady momentum in E3/E5 commercial Office licenses.
AI Infrastructure and Capex Outlook
He said Microsoft continues to take a strategic, measured approach to expanding AI infrastructure while balancing scale and energy independence.
Sills cited growing visibility into compute investments, including Microsoft's role in the Aligned Data Centers acquisition with BlackRock, Inc. (NYSE:BLK) and Nvidia Corporation (NASDAQ:NVDA), as evidence of durable demand despite Azure's current capacity limits.
The analyst expects upward revisions to fiscal 2026 capex forecasts from consensus at $115 billion (36% of revenue) to around $125 billion (38% of revenue).
Despite the stock lagging since fourth-quarter results (down 4% versus Nasdaq +6%), he views potential capex revisions as a key catalyst.
Sills also flagged two additional drivers including potential margin expansion through fiscal 2026 and accelerating commercial Office growth, expected to rise from 14% due to continued E3/E5 and Copilot adoption.
The analyst called Microsoft a top pick and an AI leader across both applications and infrastructure. Channel partners echoed his view, citing strong Azure, AI, and security momentum.
Sills projected fiscal 2026 sales of $322.1 billion and EPS of $15.24. He expects first-quarter sales of $77.5 billion and EPS of $3.64.
MSFT Price Action: MSFT stock was trading higher by 0.66% to $516.97 at last check Monday.
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