Bet on These ETFs as Microsoft's Shares Jump Post Q4 Earnings Beat

So prudent investors might want to make this an opportune entry point in this stock or increase their exposure before MSFT starts to rally high. 

However, before jumping in, investors must weigh Microsoft’s long-term upside against its soaring capital expenditure. Rapid infrastructure buildouts triggered a 23% drop in free cash flow for fiscal 2026. While management expects free cash flow to remain positive in fiscal 2027, persistent pressure on cash generation could temporarily constrain financial flexibility. If sustained, this friction could limit Microsoft's capacity for future infrastructure investments or raise leverage concerns among risk-averse investors — even as new data centers drive near-term revenue growth.

Given this backdrop, investors seeking exposure to Microsoft’s leadership in cloud computing and enterprise AI — without absorbing the single-stock risk of heavy Capex spending — should consider exchange-traded funds (ETFs) with significant MSFT holdings. This approach captures Microsoft’s upside while maintaining broad technology diversification.

Before diving into our top ETF picks, let us take a closer look at Microsoft’s fiscal fourth-quarter performance across key metrics and how Wall Street reacted.

A Brief Analysis of MSFT’s Q4 Results

Microsoft’s fiscal fourth-quarter adjusted earnings per share (EPS) beat the Zacks Consensus Estimate by 12.6%, while its revenues topped the consensus mark by 2.9%. On a year-over-year basis, the company delivered a solid performance, with both its top and bottom lines jumping by double digits.

However, its gross margin percentage contracted year over year, owing to a sales mix shift to Azure as well as continued investments in AI infrastructure and growing product usage. 

Strong demand across its Azure and first-party AI applications and services led Microsoft Cloud revenue to grow 27% year over year to $59.3 billion in the fiscal fourth quarter.  In personal computing (PC), MSFT suffered a 4% slump in revenues due to lower PC market demand. 

Its commercial bookings surged 18%, excluding the impact from OpenAI, driven by strong execution in MSFT’s core annuity sales motions and broad customer demand across geographies and customer segments.

The company ended fiscal 2026 with a 30% hike in its cash flow from operations to $55.4 billion, driven by strong cloud billings and collections. 

Looking ahead, Microsoft expects growth in Windows OEM and Devices to be impacted by lower PC market demand in fiscal 2027, as higher component costs increased device pricing. As a result, revenues from PC are projected to decline in the high teens for the next fiscal year. 

In commercial bookings, when adjusted for the impact from OpenAI, the company’s management expects to witness healthy growth backed by strong execution across its core annuity sales motions. 

The software giant will be among the first cloud providers to deploy next-generation rack-scale AI infrastructure based on AMD Helios and NVIDIA Vera Rubin.

Wall Street’s Reaction

Following Microsoft’s fiscal fourth-quarter earnings release, Scotiabank cut its MSFT price target from $550 to $470, while Piper Sandler analysts reiterated their price target of $540.00 on the stock (as cited in Investing.com).

Microsoft-Heavy ETFs to Bet on

VanEck Technology TruSector ETF TRUT

This fund, with net assets worth $164.9 million, offers exposure to 76 information technology-related companies. Of these, Microsoft carries the fourth spot, holding 9.77% of the fund. 

TRUT has soared 19.8% over the past year. The fund charges 14 basis points (bps) as fees and traded at a volume of 2.27 million shares in the last trading session.  

iShares Dow Jones US Technology ETF IYW  

This fund, with net assets worth $22.51 billion, offers exposure to 149 U.S. electronics, computer software, and hardware, and information technology companies. Of these, Microsoft carries the third spot, holding 9.27% of the fund. 

IYW has rallied 25.4% over the past year. The fund charges 38 bps as fees and traded at a volume of 0.47 million shares in the last trading session.   

Select Sector SPDR Technology ETF XLK   

This fund, with assets under management (AUM) worth $112.05 billion, offers exposure to 74 companies from technology hardware, storage and peripherals; software; communications equipment; semiconductors and semiconductor equipment; IT services; and electronic equipment, instruments and components industries. Of these, Microsoft carries the third spot, holding 8.50% of the fund. 

XLK has rallied 26.8% over the past year. The fund charges 8 bps as fees and traded at a volume of 14.37 million shares in the last trading session.  

Vanguard Information Technology Index Fund ETF VGT

This fund, with net assets worth $146.6 billion, offers exposure to 321 companies that provide technology software and services, technology hardware and equipment, as well as manufacturers of semiconductors and semiconductor equipment. Of these, Microsoft carries the third spot, holding 8.28% of the fund. 

VGT has surged 25.3% over the past year. The fund charges 9 bps as fees and traded at a volume of 5.02 million shares in the last trading session. 

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This article originally published on Zacks Investment Research (zacks.com).

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