Microsoft's stock (NASDAQ: MSFT) rebounded sharply, gaining approximately 4% in recent trading, as Wall Street reassesses the tech giant's valuation and momentum ahead of its fiscal second-quarter earnings report scheduled for January 28, 2026. The rally comes despite a roughly 12% pullback in the stock since a prior bullish analysis, highlighting an ongoing debate between the company's strong fundamentals and its market price.
Analysts maintain a largely bullish stance, with a Strong Buy consensus rating based on 32 Buy and only two Hold recommendations. The average price target sits at $626.14, implying a potential 34.4% upside from recent levels around $454.59. Key financial metrics show a mixed picture: Microsoft's Price to Earnings (P/E) ratio of 32.09 and Price to Book (P/B) of 9.24 are below industry averages, suggesting a discount on earnings and book value. However, its Price to Sales (P/S) ratio of 11.46 is above the peer average, indicating a premium on revenue.
The company's operational scale remains a dominant differentiator, with an EBITDA of $48.06 billion and gross profit of $53.63 billion far surpassing industry averages. Revenue growth of 18.43% also outpaces the sector baseline. Analysts are closely watching the upcoming earnings, expecting earnings per share (EPS) of $3.91 (up 21% year-over-year) and revenue of $80.28 billion (up 15.3%).
Major catalysts for growth include the company's massive AI investments, notably a $250 billion commitment to OpenAI and a $30 billion agreement with Anthropic. These deals are expected to drive a record quarter-over-quarter increase in Remaining Performance Obligation (RPO), which already grew 51% to $392 billion in the previous quarter. The Intelligent Cloud segment, housing the Azure platform, remains a focal point with strong growth anticipated, supported by new Fairwater AI data centers in Atlanta and Wisconsin.
While several analysts, including those from Citi, Mizuho, and UBS, have trimmed their price targets—with UBS cutting its target to $600—they have all maintained Buy ratings. The UBS note, in particular, triggered a 4.1% single-day stock jump as investors focused on the firm's bullish outlook. Concerns linger about software sector valuations pressured by AI investment costs and a rotation of investor capital into semiconductor stocks, but confidence in Microsoft's execution and robust backlog remains high.
