Earnings Report Preview | Major Banks Bullish Ahead of Q3 Earnings, Can Microsoft "Add Fuel to the Fire" for a U.S. Stock Market Rebound?

According to Zhitong Finance APP, Microsoft Corporation (MSFT.US) will release its fiscal year 2025 third-quarter report after the market closes on Wednesday. Currently, analysts are generally optimistic about the stock of this tech giant. Analysts surveyed by Visible Alpha expect Microsoft's third-quarter revenue to reach $68.44 billion, a year-on-year increase of over 10%; net profit is expected to be $23.94 billion, with earnings per share of $3.21, higher than the $21.94 billion (EPS of $2.94) from the same period last year. Revenue from Microsoft's Intelligent Cloud segment (including the Azure cloud computing platform) is expected to soar by 18%, reaching $26.13 billion.

Major Firms Are Bullish Before Earnings

According to Visible Alpha, all 20 analysts it tracks have given Microsoft stock a "buy" or equivalent rating. Although Microsoft's stock price has fallen by 7% in 2025, the average target price set by analysts is slightly above $492, indicating more than a 25% upside from last Friday's closing price of $391.85.

As of April 23, 2025, according to TipRanks' smart scoring system, Microsoft received a score of 9 for "outperforming the market." Analysts rated it as "buy," with 32 analysts recommending "buy," 4 giving "hold," and no "sell" recommendations.

Wedbush analysts recently lowered Microsoft's target price from $550 to $475 due to concerns over President Trump's tariffs, but they stated they remain "bullish in the long term" on Microsoft, primarily due to its potential in the artificial intelligence sector. Analysts noted, "We are increasingly convinced that the monetization opportunities brought by deploying artificial intelligence in the cloud computing sector will transform the entire industry, and Microsoft will continue to hold a dominant position."

Goldman Sachs analysts also maintained a "buy" rating on Microsoft stock but lowered the target price from $500 to $450. They believe that the current economic environment presents "many uncertainties," but Microsoft has an "advantage" in seizing artificial intelligence opportunities.

Morningstar analysts pointed out that compared to many other tech companies, Microsoft has significant advantages due to its "minimal risk exposure in retail, advertising spending, cyclical hardware, and physical supply chains."

Highlights of Q3 Financial Report

In a market filled with uncertainties, investors will closely monitor its cloud service performance, artificial intelligence investments, and earnings outlook.

Previously, due to disappointing cloud business performance and weak earnings guidance, Microsoft's stock price fell consecutively after the earnings report was released. The company's Intelligent Cloud segment, including Azure, saw revenue growth of 19% in the quarter, reaching $25.54 billion, below the market's general expectation of $25.83 billion.

Microsoft's cloud business is under scrutiny due to fierce competition in the artificial intelligence sector with Amazon Web Services (AWS) and Google. These three tech giants are investing heavily to enhance their artificial intelligence capabilities. Microsoft Chairman and CEO Satya Nadella stated, "Currently, our artificial intelligence business has an annualized revenue exceeding $13 billion, a year-on-year increase of 175%In the second quarter earnings call, Microsoft provided third-quarter revenue guidance of $67.7 billion to $68.7 billion, below the market consensus expectation of $69.78 billion. The following aspects will become the focus of attention:

Cloud service growth: Analysts expect Azure to maintain strong growth, with a growth rate of around 30%. Investors will pay attention to whether it can surpass competitors such as Amazon Web Services and Google Cloud.

Investment and development in artificial intelligence: Microsoft has made significant investments in the field of artificial intelligence, including tools like Microsoft 365 Copilot and Azure OpenAI Service. Investors hope to see these investments translate into substantial revenue.

Performance of gaming and Xbox business: With increasing attention on the gaming business, especially Xbox, user growth and new game release dynamics will be closely watched.

Earnings guidance and outlook: The market will carefully examine Microsoft's forward-looking statements and earnings guidance to assess management's expectations for future growth and whether the company has strategic adjustments in response to changes in the competitive landscape and macroeconomic challenges.

What impact do tariffs have on Microsoft?

Compared to other large technology companies, Microsoft is relatively less affected by tariffs, but it is not completely immune. Microsoft's core revenue comes from enterprise software and cloud services (such as Azure, Microsoft 365, Dynamics 365), accounting for approximately 74.4% of its net sales. Unlike physical goods, software and cloud services, as intangible products, are not directly affected by import tariffs.

However, the greater risk Microsoft faces is that tariffs and trade policies could trigger a broader economic recession. JP Morgan estimates a 60% probability of a global economic recession. If Microsoft's enterprise customers face profit pressures or budget cuts, they may delay or reduce spending on cloud services and software subscriptions, which could indirectly impact Microsoft's revenue.

Additionally, retaliatory tariff policies that other countries and regions, such as the European Union, may implement could target Microsoft's services, especially considering that the EU has previously fined American technology companies