Key Highlights

  • Microsoft shares were trading up 7.13% at $558.12, against a prior close of $520.99.
  • The stock reached a record high of $559.14, up from a 52-week low of $349.20.
  • The Dow was up about 2.9%, the S&P 500 about 1.8% and the Nasdaq about 1.7%.
  • Azure grew 48% in the fiscal first quarter, and commercial Backlog reached $677 billion.
  • Analyst price targets run as high as $722.

Midterm Rally Carries Microsoft to an All-Time High

Microsoft (NASDAQ:MSFT) shares were trading up 7.13% at $558.12 on Wednesday, on heavy volume, after touching a record high. Wall Street surged after Democrats won control of both the House and the Senate, which investors read as lower policy risk. The Dow was up about 2.9%, the S&P 500 about 1.8% and the Nasdaq about 1.7%, so Microsoft is running well ahead of all three.

Oil also fell sharply on hopes for US-Iran peace talks, with crude down about 8% to $88.12, which helped risk appetite across the market.

Cash-Rich Giants Win While Data Center Plays Slide

Microsoft was founded in 1975 and is based in Redmond, Washington, with about 223,000 employees and three segments: Productivity and Business Processes, Intelligent Cloud and More Personal Computing. Under Chairman and Chief Executive Satya Nadella, it has centered its strategy on cloud and AI, with Azure as the key growth driver.

The rotation is selective. Investors favored large companies with deep cash reserves and limited exposure to political risk around AI infrastructure. Apple (NASDAQ:AAPL) also rose more than 6% to an all-time high, while Alphabet (NASDAQ:GOOGL) gained about 4% and Meta Platforms (NASDAQ:META) about 3%.

The thinking is that a slower buildout of data centers, whether from state construction limits or tighter financing, would ease spending demands on companies that already own plenty of capacity. CoreWeave (NASDAQ:CRWV) slumped about 9%, and chipmakers and data-center operators fell, though AMD (NASDAQ:AMD) and Super Micro Computer (NASDAQ:SMCI) had bounced after hours on Tuesday. Wells Fargo Investment Institute noted that both parties still have a reason to compromise on data center locations and AI more broadly.

Azure at 48% and a $677 Billion Backlog Support the Move

Last week’s fiscal first-quarter report supplies the fundamentals. Revenue of $92.3 billion rose 19% and beat estimates near $90.6 billion, Operating Income grew 21%, and adjusted EPS of $4.89 topped the $4.71 consensus. Microsoft Cloud revenue reached $63.9 billion, with growth accelerating to 30%, and Foundry revenue more than tripled.

Commercial remaining performance obligations jumped 73% to $677 billion, and roughly 30% of that should be recognized within a year. Free Cash Flow was $18.6 billion, and $10.2 billion went back to shareholders. Copilot daily users rose nearly 50% from the prior quarter, while some Microsoft 365 plans sold more slowly.

Capital Spending Above $50 Billion Is the Test After a Record Close

Looking ahead, second-quarter guidance includes cost of revenue of $32.7 billion to $32.9 billion and operating expenses of $18.5 billion to $18.6 billion, with a tax rate near 20% and Microsoft Cloud gross Margin near 65%. Commercial bookings fell 11% against large prior-year Azure commitments, and management cited softer sales of some Microsoft 365 plans, offset by adoption of the premium E7 tier in the millions of seats. Windows OEM and device revenue is expected to decline in the mid-30s percent range.

Capital spending hit $45.2 billion last quarter, partly because some third-party capacity deliveries slipped, and management expects more than $50 billion next quarter and about $170 billion for the calendar year. Second-quarter guidance calls for revenue of $96 billion to $97.1 billion and Azure growth of 49% to 50% in constant currency, with Demand still above supply. Management said free cash flow should stay positive for the fiscal year.

The stock trades at 26.86 times forward Earnings and 29.17 times trailing earnings, with a Dividend Yield of 0.65%. The net takeaway is that a strong quarter and a favorable political rotation have collided, which leaves the shares more exposed to any wobble in either. Spending guidance, any new state limits on data centers and the durability of the rotation are the next things to watch, along with a downgrade that has already appeared from one analyst.