Bank of America resets Microsoft stock forecast ahead of earnings

Microsoft (MSFT) evolved from a software company into a tech giant that makes revenue from three different business segments. These include Productivity and Business Processes, Intelligent Cloud, and More Personal Computing.

The stock has lost about 13% year to date, at the time of writing, Monday afternoon, April 20, according to Yahoo Finance. Meanwhile, the SPDR S&P 500 index (SPY) is up about 4% in the same period.

The company's heavy focus on artificial intelligence is the key driver of the stock, and the main AI product is Microsoft 365 Copilot.

The stock crashed following its Q2 fiscal year 2026 earnings report on January 28. It closed at $481.63, and the following day it closed at $433.55, losing about 10%. The company's large capital expenditures and reliance on OpenAI contributed to the crash.

"Approximately 45% of our commercial [remaining performance obligations] balance is from OpenAI," CFO Amy Hood said during the earnings call.

Microsoft's remaining performance obligations are $625 billion, according to Form 10-Q. Many investors believe that depending on OpenAI for 45% of that sum is a big risk.

The company will report its Q3 fiscal year 2026 earnings after the close on Wednesday, April 29. Microsoft has made a few significant moves recently to improve its AI strategy.

Microsoft makes key changes to strengthen AI strategy

Just before the Q2 earnings report, Microsoft unveiled Maia 200, its updated custom AI inference accelerator, on Jan. 26. It took almost a month before Goldman Sachs analysts formed an opinion on how these chips would affect the stock.

The company responded to user backlash, promising it was "focusing on experiences that are genuinely useful and well‑crafted."

More Tech Stocks:

• Bank of America resets Nvidia stock forecast after meeting with CFO
• Goldman Sachs resets Broadcom stock forecast
• Bank of America resets Amazon stock forecast

Microsoft also made major leadership changes, with the most important being the naming of Jacob Andreou as EVP for Copilot.

Another key move was not joining the latest OpenAI funding round. Microsoft released a joint statement with OpenAI, stating that despite its absence from the funding round, both remain committed to the partnership.

An additional significant change was the launch of Copilot Cowork in March for Frontier (early access program).

The idea behind Copilot Cowork is to enable delegation and completion of work. This iteration of Copilot can handle tasks that require multiple steps.

According to the company, Copilot Cowork enables you to describe the outcome you want, then creates a plan, reasons across your tools and files, and carries work forward with visible progress and opportunities to steer.

Bank of America forecasts 16.2% Q3 YoY revenue growth for MSFT

Bank of America analyst Tal Liani and his team have updated their opinion on Microsoft stock ahead of earnings.

The team said the key item to watch for this quarter is the pace at which incremental compute capacity comes online and impacts Azure growth. They noted that in the last quarter, Azure grew 38% in constant currency (cc), and that Microsoft management said this growth could have reached 40% or more without compute constraints.

They estimate Q3 Azure revenue growth of 37.5% cc, which is in line with Wall Street expectations, adding that for the stock to go up, they believe the company would need to beat the Azure growth expectations.

Forecast for Microsoft earnings Q3 2026:

Liani noted that Copilot monetization and the penetration within Microsoft's M365 commercial base remain another focus area. He said the last quarter saw a relatively modest Copilot seat level at approximately 15 million, or 3.5% of M365 seats.

In a research note shared with me, Liani reiterated a buy rating for Microsoft stock and a price target of $500, based on a 24 multiple of his estimate for price-to-earnings ratio for 2027. This is higher than the peer group, which is in the range of 18x to 22x. He believes that sustained revenue growth and margin profile warrant this high multiple.

Analysts noted downside risks for Microsoft:

• Near-term gross margin pressure
• AI applications and model providers that may innovate at a faster rate than Microsoft
• Highly cyclical nature of enterprise application spending

Related: Bank of America resets Apple stock forecast

The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.

This story was originally published April 20, 2026 at 1:00 PM.