Microsoft (MSFT) stock is trading higher by almost 1% on Monday as big-cap technology stocks advance in a broader risk-on session. The Nasdaq has gained almost 1%, while the S&P 500 is up 0.33%. Technology is leading all sectors with a 0.9% gain.

Investors are also looking ahead to Microsoft's fiscal fourth-quarter earnings on July 29, with Wall Street closely watching Azure cloud growth, artificial intelligence monetization and capital spending, according to a new Bank of America research note.

Azure Growth Remains The Top Metric

Bank of America reiterated its Buy rating on Microsoft and maintained its $500 price forecast, saying Azure's growth trajectory will likely determine investor sentiment after earnings. The firm expects Azure revenue growth of 39.5% in constant currency, near the company's guidance of 39% to 40%.

The analysts said demand continues to exceed available capacity, while Microsoft's newly operational Fairwater data center in Wisconsin should help convert its large remaining performance obligation backlog into revenue. The company ended the previous quarter with $627 billion in commercial remaining performance obligations, with management expecting about 25% of that amount to be recognized over the next 12 months.

Bank of America said Azure growth at or above guidance is likely necessary for the stock to perform well, while a miss could renew concerns about returns on Microsoft's heavy AI investments.

AI Spending And Copilot Adoption In Focus

The brokerage expects Microsoft to report about $42 billion in fourth-quarter capital expenditures, including leases, up 74% year over year as the company continues expanding AI infrastructure. That spending is expected to pressure free cash flow in the near term.

Beyond infrastructure, analysts said investors will closely monitor adoption of Microsoft 365 Copilot and broader AI monetization. Microsoft ended the previous quarter with 20 million paid Copilot seats after adding 5 million sequentially, while AI annual recurring revenue exceeded $37 billion, up 123% from a year earlier. Bank of America views continued growth in those metrics as evidence that AI adoption is translating into incremental revenue.

Revenue Outlook And Valuation

Bank of America forecasts fourth-quarter revenue of $87.4 billion, up 14.4% from a year earlier, and earnings per share of $4.24, broadly in line with Wall Street expectations. The firm also raised its fiscal 2027 and 2028 revenue and earnings estimates to reflect stronger Azure growth as additional AI capacity comes online.

The analysts said Microsoft's valuation remains attractive, noting the stock trades at about 19 times their calendar 2027 earnings estimate, below its five-year average multiple of 29 times.

Price Action

Microsoft shares were up 0.90% at $397.35 at the time of publication on Monday, according to market data.