Can Microsoft Q4 Earnings Boost AI ETFs?

Unlike Nvidia, shares of which have continued to rally on booming AI demand, Microsoft's stock has fallen 19.3% from the start of the year till July 24, 2026.

Bank of America Anticipates Improvement

Despite the recent weakness, Bank of America analyst Tal Liani remains optimistic on Microsoft. Ahead of the July 29 earnings release, Liani reiterated a Buy rating and maintained a $500 price target, while raising his earnings estimates for the next two fiscal years, per a The Street article, as quoted on Yahoo Finance.

According to Liani, Microsoft is trading at around 19 times his projected fiscal 2027 earnings, well below its five-year average valuation multiple of 29 times. He believes that the market is focusing too heavily on near-term capital expenditure, while overlooking Microsoft's long-term earnings potential, per Yahoo Finance.

Azure Growth Remains Major Catalyst

For investors, Azure's performance is expected to be the single most important metric in the earnings report.

Microsoft has guided for Azure revenue growth in the high-30% to 40%, while Bank of America expects growth of 39-40%, per a The Street article, as quoted on Yahoo Finance.

Meeting or exceeding this level would demonstrate that Microsoft's expanding AI infrastructure is successfully converting customer demand into revenues. However, a weaker-than-expected Azure number can reignite concerns over whether Microsoft's enormous AI investments are delivering adequate returns.

Heavy AI Spending Under the Spotlight

The company expects to invest $190 billion in infrastructure, with much of the spending directed toward AI-focused data centers, advanced chips and cloud infrastructure, per Yahoo Finance.

Management argues that today's spending is laying the foundation for substantially higher future revenues. However, investors will closely watch management's commentary on fiscal 2027 capital expenditure plans to determine whether AI spending is beginning to moderate.

Zacks Consensus Estimates for Microsoft

The Zacks Consensus Estimate for Microsoft's fourth-quarter earnings per share (EPS) stands at $4.21, suggesting 15.34% year-over-year growth. For the fiscal year, the consensus EPS estimate stands at $17.32, indicating a 26.98% year-over-year rally.

The Zacks Consensus Estimate for revenues stands at $87.44 billion, implying a 14.39% year-over-year rise. For the fiscal year, the consensus estimate for revenues is pegged at $329.26 billion, suggesting year-over-year growth of 16.87%.

In a nutshell, Microsoft could benefit from AI momentum, Copilot adoption and Azure cloud expansion. Strong Microsoft 365 Commercial demand continues to drive revenue growth. However, AI ROI concerns may act as a headwind for the stock.

Microsoft-Heavy ETFs in Focus

Microsoft remains one of the largest holdings across numerous technology and AI-focused ETFs. A strong earnings report can provide a boost to relevant ETFs.

Conversely, disappointing Azure growth or further increases in AI spending without clear evidence of improving profitability could pressure both Microsoft shares, and the broader AI and technology ETF universe.

Global X PureCap MSCI Information Technology ETF GXPT is designed to give investors exposure to the U.S. information technology sector. Microsoft holds a weightage of 12.03% in this fund.

GXPT has risen 15.9% from the start of the year till July 24, 2026, with an expense ratio of 0.15% and traded a volume of 100,000 shares. It has an AUM base of $134.9 million and it holds a Zacks ETF Rank #2 (Buy). 

Vanguard Information Technology VGT is one of the popular U.S. technology ETFs, offering low-cost exposure to a wide range of IT companies with a strong emphasis on semiconductors, hardware and software.

Microsoft holds a weightage of 8.28% in this fund. VGT has assets under management worth $138,694 million, along with an expense ratio of 0.09%. The fund trades an average volume of 5,000,000 shares. The fund has risen about 20% year to date. It holds Zacks ETF #1 (Strong Buy).

Amplify Video Game Leaders ETFGAMR invests in companies across the global video gaming ecosystem that includes companies involved in game development, GPUs, gaming platforms, mobile games, hardware and metaverse-related technologies.

Microsoft holds a weightage of 9.62% in this fund. The fund has an expense ratio of 0.59% and trades an average volume of 1,141 shares with assets under management worth $36.8 million.

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

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