Skip to navigationSkip to main contentSkip to right columnADVERTISEMENTAdam Spatacco, The Motley FoolWed, July 22, 2026 at 1:20 AM GMT+2 4 min readMicrosoft (NASDAQ: MSFT) stock has struggled mightily throughout 2026. As of this writing (July 20), shares are down 18% on the year -- a stark contrast to the S&P 500's gain of 9%. Within the "Magnificent Seven" tech stocks, Microsoft stands out as the clear laggard.Investor skepticism around the company's huge artificial intelligence (AI) infrastructure spending has weighed on sentiment despite the company's underlying business momentum. With earnings scheduled for July 29, I think there is a strong case for a sharp rebound in Microsoft stock. Read on to learn why.Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »Image source: Getty Images.Why is Microsoft stock down this year?The primary culprit behind the stock's decline is widespread concern over the return on the company's aggressive capital expenditures (capex). Management has accelerated spending on AI data centers, with 2026 capex guidance projected at $190 billion. These infrastructure investments are pressuring free cash flow, raising questions about near-term profit margins as depreciation on GPUs and related hardware accelerates.MSFT Capital Expenditures (TTM) data by YCharts; TTM = trailing 12 months.Growth in its Azure cloud segment is also facing heightened scrutiny. It delivered 40% annual growth last quarter -- outpacing Amazon Web Services' (AWS) 28% pace -- but some investors are beginning to worry about Microsoft's ability to sustain leadership in the AI cloud landscape without even higher spending.What is Wall Street expecting?According to consensus estimates, Wall Street analysts are looking for Microsoft to report revenue of $87.7 billion and earnings per share (EPS) of $4.24. Management's own guidance calls for total revenue between $86.7 billion and $87.8 billion, with Azure forecast to have 39% to 40% growth based on constant currency.These figures include continued enterprise momentum offset by softer consumer hardware trends. In my eyes, this is a relatively achievable bar that leaves room for an earnings beat if AI demand proves stronger than forecast.Analyzing Microsoft's valuationI see a few reasons that could drive better-than-expected results in Microsoft's upcoming earnings report. Azure growth could accelerate even further as newly added capacity comes online and utilization improves, allowing the company to capture incremental AI workloads.Moreover, if Copilot adoption continues expanding across Microsoft 365, the company's revenue profile should shift toward higher-margin, usage-based models -- supporting acceleration in the Productivity segment.Terms and Privacy PolicyEU DSA contactPrivacy & Cookie SettingsMore Info