Microsoft is poised to report its earnings on October 28, with all eyes on its Azure cloud computing platform. The company has guided for Azure revenue growth of 44% to 45% in constant currency for the quarter ended September 30. This follows a significant rebound in Microsoft's stock, which had shed over a third of its value earlier in the year but recovered after a strong July earnings report.
Azure's performance has been a critical driver of Microsoft's stock movements. In the past four reports, the stock's next-day move has closely tracked Azure's growth rate. A 40% growth rate has been seen as a threshold; anything below has led to stock declines, while higher growth has spurred gains. For instance, a 43% growth in the June quarter lifted the stock by about 16%.
For the upcoming report, Microsoft needs Azure to meet or exceed its guidance. The company has also guided for capital expenditures of over $50 billion in the September quarter, up from $41 billion in the June quarter. Additionally, margins in Microsoft Cloud have been a concern, dropping from 68% to 65% over the past year. Holding or improving these margins will be crucial.
If Azure's growth falls below 40%, it could lead to a significant drop in the stock price, similar to the 10% decline seen in January. The stock is currently trading around $533, less than 2% below its record close of $542.07 set on October 28, 2025. Investors will be watching closely to see if Azure can maintain its rapid growth and justify the company's high spending and valuation.