Microsoft (MSFT) shares are inching higher heading into the giant’s fiscal Q4 earnings scheduled to be released after market close on Wednesday, July 29th.
Wall Street has set a high bar for MSFT, with consensus estimates set at $87.42 billion for revenue, representing a 14.4% year-on-year increase – and $4.21 per share for earnings, reflecting a 15.3% growth from last year.
Still, Microsoft stock has come under pressure amidst a broader tech rout in recent weeks, currently down more than 15% versus its June high.
Where options data suggests Microsoft stock is headed
The recent weakness in MSFT shares has failed to deter options traders, though.
Heading into the quarterly print, the put-to-call ratio on contracts expiring at the end of this week sits at 0.41, indicating a bullish skew.
And the upper price on those contracts, according to Barchart, is set at $416.54, signaling potential for a more than 6% rally in Microsoft Corp on the back of the earnings release.
Crucially, this optimism is mirrored in the technical setup as well.
MSFT has recently ripped through its 20-day moving average (MA), and is now trading just under its 50-day MA, with a clear break above the $399 level expected to accelerate positive momentum after Q2 financials.
UBS lowers price target on MSFT shares
Adding a layer of nuance to the earnings setup, UBS’s senior analyst Karl Kierstead trimmed his price target on Microsoft shares today to $480.
The revision follows recent field checks with roughly a dozen key enterprise clients and channel partners.
Kierstead pointed to near-term capacity constraints on external Azure customers and growing token-optimization efforts by developers, which could cap immediate upside in cloud revenue growth.
Moreover, UBS cautioned that MSFT’s capex could escalate beyond previous expectations due to memory chip inflation and heavy infrastructure commitments, noting that public markets have recently punished tech giants whose surging AI spend fails to instantly yield expanding operating margins.
How to play Microsoft heading into Q4 earnings
Even with the price target haircut, UBS maintained its Buy rating on MSFT stock – stressing that the long-term structural thesis for the tech titan remains firmly intact.
In fact, Kierstead’s downwardly revised price objective still represents a massive 22% upside from here. According to him, underlying demand across Azure and rival AWS remains “exceptionally” healthy.
Plus, strategic monetization levers, such as GitHub Copilot pricing updates and growing enterprise AI integration, are expected to provide a steady tailwind to cloud growth.
With Microsoft trading at an “attractive valuation” relative to its long-term growth outlook, UBS views the current pullback as a temporary consolidation before the next leg higher.
A small 0.93% dividend yield on MSFT makes it even more compelling as a long-term holding, at least for income-focused investors.
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