Key Takeaways
As earnings season approaches, it’s worth considering stocks that might experience notable shifts following their earnings reports. Some stocks have not performed well since their last financial updates. Take Microsoft (NASDAQ: MSFT), for instance. After announcing its first quarter financial results for 2026 (ending September 30) on October 29, the stock has dropped nearly 14%.
This kind of decline is unusual for a tech giant like Microsoft, but it might be viewed as an opportunity for long-term investors. The company’s next earnings report, for the second quarter of fiscal 2026 (ending December 31), is set for January 28.
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This raises the question: Is it a good time to buy, or should investors wait? Let’s explore that.
Microsoft’s success in the market can be attributed to several key components.
The company has its hands in various sectors, notably in Office products that many people rely on daily. It also has hardware products and owns the Xbox gaming system along with the Activision-Blizzard game studio and LinkedIn, which is a major professional social network. Investors are particularly keen to know how Microsoft is navigating the landscape of artificial intelligence (AI) these days.
One of their standout offerings, the Copilot integrated into Office, has gained popularity thanks to its AI features, which are central to Microsoft’s approach. Moreover, the Azure cloud computing platform has emerged as a top choice for developing AI applications, largely because users have access to diverse computing resources.
Microsoft’s stake in OpenAI—the creator of ChatGPT—positions it at the forefront of generative AI. Additionally, users have access to other significant AI models, like Grok from X Meta’s Llama and Claude from Anthropic, which has propelled substantial growth for Azure, seeing a 40% increase in revenue year-over-year in Q1.
If Azure continues to do well along with its other divisions, there’s a chance the stock prices could go up. That said, if the upcoming earnings report shows any underperformance, a slight drop shouldn’t be off the table.
The recent decline in Microsoft’s stock could be perceived not as a failure but rather a correction, as its valuation was perhaps a bit inflated.
Microsoft’s valuation currently seems reasonable.
From late October until the decline, Microsoft’s shares were trading at over 32 times its projected earnings. Most large tech companies trade around 30 times their future earnings, making this valuation a bit on the higher side for Microsoft.
Comparatively, the average price-to-earnings ratio for Microsoft over the last five years is about 31.5x, suggesting that at 28.5x future earnings, it could represent an appealing entry point.
If the fiscal 2026 Q2 results are solid, there’s a possibility the stock price may experience a small uptick. It certainly appears to be a reasonable trade at present, making it an opportunity for long-term investors to consider.
Should you consider buying Microsoft stock now?
Before making any moves, it’s crucial to weigh these factors:
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