On Thursday, Microsoft (MSFT.US) delivered stronger-than-expected fourth-quarter earnings and guidance, a stellar performance that not only won market approval but also earned unanimous praise from Wall Street analysts. Following the earnings release, the tech giant's stock surged as much as 7% during Thursday's trading session before closing up nearly 4%. As of Thursday's close, the company's shares have gained over 27% year-to-date.

Wedbush raised Microsoft's price target from $600 to $625 while maintaining its "Outperform" rating, citing the company's "impressive cloud services and artificial intelligence (AI) business growth momentum." The analyst team led by Daniel Ives noted: "This quarter's results have Microsoft bulls rejoicing, with Azure cloud services showing significant acceleration in growth, AI revolution momentum continuing strong, and more enterprises doubling down on this strategic area, with all metrics far exceeding market expectations."

Analysts project that AI business could contribute approximately $25 billion in incremental revenue by fiscal 2026. Historical data shows that for every $100 enterprises have invested in Microsoft Azure cloud services over the past few years, they add another $50 for AI services in subsequent years.

"Microsoft's performance this quarter was nothing short of perfect," Ives and his team stated. "Cloud services and AI technology are driving profound transformation across industries, with the company continuing to occupy a central position in the AI revolution. But we believe Microsoft's AI monetization process is just getting started, and as more enterprises accelerate their expansion of AI partnerships with Microsoft, the growth potential for fiscal 2026 remains underestimated by the market."

Analysts particularly highlighted that Azure revenue grew 39% year-over-year (far exceeding market expectations of 34% and the baseline of 36%), with total revenue surpassing $75 billion (up 34% year-over-year), serving as a key indicator of AI contribution. All workloads achieved comprehensive growth, confirming that AI technology is reshaping Microsoft's cloud business development trajectory.

Looking ahead, despite expectations of compute capacity constraints in the first half of fiscal 2026, Microsoft provided robust annual guidance for the beginning of the year. Analysts emphasized that fiscal 2026 will clearly be a true inflection point for Microsoft's AI business growth.

Analysts expect the "Intelligent Cloud" segment revenue to reach $30.1 billion to $30.4 billion in fiscal 2026 (versus Wall Street expectations of $29.42 billion); at constant currency, Azure growth is projected to approach 37% (versus Wall Street expectations of 34%).

The Ives team revealed that Microsoft is fully advancing its integrated cloud services and AI development strategy. The company plans to invest over $30 billion in capital expenditures in the first quarter of fiscal 2026, suggesting full-year capital spending of $120 billion. This strategic deployment focuses both on expanding cloud infrastructure and enhancing data center capacity to capture sustained strong market demand.

Goldman Sachs reiterated its "Buy" rating on Microsoft and raised its price target from $550 to $630. The analyst team led by Kash Rangan noted: "We are increasingly convinced that AI-driven growth will continue to help Microsoft expand market share across all business segments. This quarter's results confirm our view—AI technology is penetrating the entire product stack, and Microsoft's leading position in GPU computing is creating ripple effects that drive demand growth for its high-margin product suite. Notably, these products span all levels of the technology stack."

Analysts believe that in the new era dominated by intelligent agents, as AI workloads rapidly expand, Microsoft will comprehensively benefit from increased usage of storage, databases, and applications (including revenue sharing with OpenAI). The Rangan team emphasized: "Following the development trajectory of previous cloud computing cycles, as high-margin AI inference workloads scale up, and Microsoft continues to guide customers toward its high-margin platforms and applications through cross-selling, the company's gross margins and profit growth will regain acceleration momentum."

KeyBanc Capital upgraded Microsoft's rating from "Hold" to "Overweight" with a price target of $630. Analyst Jackson Ader's team acknowledged that their April downgrade was based on concerns about capital expenditures and depreciation expenses eroding gross margins, market controversy over AI investment returns, and doubts about Microsoft's determination and ability to maintain profits through continued layoffs. Additionally, macroeconomic concerns revealed in their spring research were believed to have a more significant impact on Microsoft compared to peers.

However, data shows that Azure business growth at constant currency accelerated by 8 percentage points cumulatively in the second half: rising from 31% in January to 35% in March, and further accelerating to 39% at fiscal year-end. Strong performance over the past two quarters has temporarily silenced these controversies.

The Ader team added that Azure exceeded guidance by approximately $500 million and $700 million in the last two quarters respectively, equivalent to pulling a Monday.com (MNDY.US) market cap out of thin air. "Such outperformance convinces us that the market won't engage in much debate about Azure business support costs for the rest of the year," they stated.

The Ader team also noted that the earnings call made no mention of significant macroeconomic headwinds, and "since we worried about the need to cut operating expenses to maintain margins, Microsoft has laid off over 10,000 people."

"We stated last quarter that while maintaining our 'Hold' rating, we might not be able to withstand several more quarters of significant earnings outperformance, and now, we can neither withstand it nor continue to adhere to the logic behind that rating," they added.