Why Microsoft's stock soared to a historic gain after earnings

By Hannah Pedone

The company's cloud business is sporting impressive growth, and Microsoft expects to avoid heading into cash-burn mode as it spends up on AI

Microsoft's stock rose 15.5% on Thursday.

Microsoft has finally started to convince Wall Street that it's striking the right balance on artificial intelligence - and that's translating to historic stock gains.

The company had been fending off criticism for its AI spending, especially as cloud growth had been held in check. But investors are now warming to Microsoft's (MSFT) story as the company's latest earnings showed accelerating cloud performance. At the same time, management offered some reassurance that heavy AI spending isn't expected to push the company into negative free-cash-flow territory this fiscal year.

As a result, Microsoft's stock saw its best day in nearly 18 years. Shares jumped 15.5% on Thursday, for their best single-day performance since Oct. 13, 2008, when they rose 18.6%. The stock also marked its best post-earnings performance on record, according to Dow Jones Market Data.

D.A. Davidson analyst Gil Luria wrote in a Thursday note that Microsoft's "very strong" report "should not only change the narrative on Microsoft, but also communicate that the AI buildout is in responsible hands."

He called the software giant "the adult in the room."

Evercore ISI analyst Kirk Materne wrote in a Thursday note that the "magnitude of the upside" for the company's Azure acceleration "came in ahead of even the most bullish expectations." He called out the company's 43% Azure growth rate for the fiscal fourth quarter, and the fact that the company is targeting a 45% growth rate for the September quarter in constant currency.

Analysts tracked by FactSet were modeling roughly 42% growth for the September quarter.

He also called out Microsoft 365 Copilot's momentum. The company reported reaching over 30 million paid seats for Copilot, which is its AI assistant.

"Christmas came a bit early for [Microsoft] shareholders," he wrote.

See also: Nvidia's potential new deal with OpenAI would revive a spooky tech-bubble habit, analyst warns

TD Cowen analyst Derrick Wood wrote in a Thursday note that the combination of greater Azure upside than expected and a disciplined capital-spending outlook "was the best scenario outcome for the stock."

That balance made for a "Goldilocks" report that Wood said should "support a sustained rally in shares."

-Hannah Pedone

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07-30-26 1621ET