AI leader Microsoft is set to report fiscal Q4 earnings results on Wednesday after the closing bell. Microsoft, a Zacks Rank #2 (Buy), has handily outperformed the market year-to-date with a better than 22% return. But with markets looking extended in the short-term, is the stock a buy heading into the release?

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Wall Street remains bullish on the company’s bottom line. Analysts are expecting Microsoft to deliver quarterly earnings of $3.35 per share, up 13.6% from the $2.95 recorded a year ago. The Zacks Consensus Estimate for revenues is pegged at $73.71 billion, which would mark a 13.9% improvement versus the same quarter in the prior year. Estimates have remained stable over the past 60 days.

Adding to investor confidence is Microsoft’s impressive track record of beating expectations. Microsoft has averaged a 5.2% positive earnings surprise over the past four quarters. The tech giant has exceeded earnings estimates for 11 consecutive quarters.

The software behemoth is expected to have benefited from sustained Microsoft 365 Commercial growth. In addition, Microsoft’s cloud offering is a key growth catalyst. Azure remains an enterprise favorite, with revenue growth projected between 34% and 35% in constant currency terms. The platform has rapidly become the infrastructure of choice for AI workloads.

Another figure to watch will be anticipated capital expenditures. Google-parent Alphabet, which raised its own capex forecast last week as it invests more heavily in AI infrastructure, set the tone for Big Tech this quarter. While the higher-than-expected capex number sparked short-lived concerns, the underlying strength of the company’s earnings helped support shares following the announcement.

Perhaps we will see a similar trend this week as Microsoft (MSFT Quick QuoteMSFT - Free Report) could follow cloud computing competitor Alphabet's lead. While both companies left their capex forecasts unchanged when they reported quarterly results a few months ago, they appear to be feeling more confident about boosting AI spending now that some of the uncertainty has been lifted by trade agreements. Over the past year, Microsoft has invested heavily in data center expansion, allocating $80 billion in capital spending for fiscal 2025.

Microsoft CEO Satya Nadella recently addressed what he called an issue that was "weighing heavily" on him: the company’s ongoing layoffs. Over 15,000 Microsoft employees have been let go this year alone, a transition that Nadella described as a “necessary but painful” restructuring amid advancements in AI. Recent headcount reductions may positively impact the fiscal year 2026 margin outlook.

Despite the layoffs, market participants have applauded Microsoft’s leaner approach. The second-largest component of the S&P 500 by weight, the stock has broken out to all-time highs ahead of the announcement. The sustained climb reflects Microsoft’s solid growth led by significant demand for its AI and cloud offerings.

Still, the bar for earnings is set high, so Microsoft will need to deliver a strong report to keep its momentum going. The stock is currently trading at over 34 times forward earnings, well above the industry average. But the company’s dominant position and future growth prospects may support the lofty valuation.