Why Microsoft Stock Surged 24.6% in July While the Market Was Flat

Shares of software and cloud computing giant Microsoft (NASDAQ: MSFT) soared 24.6% in July, according to data from S&P Global Market Intelligence.

For context, the S&P 500 index was essentially flat -- it edged down less than 0.1% -- while the tech-heavy Nasdaq Composite index declined 3.2%.

Investors were no doubt particularly pleased with Microsoft's stock jump in July because shares had been about 19% in the red in 2026 before last week's earnings release. Through Tuesday, Aug. 4, Microsoft stock has returned 2.3% in 2026. The S&P 500 has returned 13.8% over this period.

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Robust quarterly results

On July 30, Microsoft stock jumped 15.5%, following the release of its results for the fourth quarter of fiscal 2026 (ended June 30) on the prior afternoon. Moreover, the stock gained 19% in the two days following this release.

Microsoft reported quarterly revenue of $90.0 billion, up 18% year over year. This result comfortably beat Wall Street's consensus estimate of $87.6 billion. Net income on a non-GAAP (generally accepted accounting principles) basis was $35.3 billion, up 22%. That translated to adjusted earnings per share (EPS) increasing 23% to $4.74. This result sprinted by Wall Street's expectation of $4.24.

Non-GAAP results excluded the impact of the company's investments in AI model developer OpenAI, best known for its ChatGPT chatbot.

Revenue growth was driven by strong performance in Microsoft Cloud. Its revenue was $59.3 billion, up 27% year over year, and commercial remaining performance obligation increased 84% to $678 billion. This performance was driven by strong demand for artificial intelligence (AI) capabilities.

Within Cloud, Azure (its cloud computing platform) and other cloud services revenue increased 43%.

"This year, Azure revenue surpassed $100 billion for the first time, and Microsoft 365 Copilot [its AI-powered assistant that integrates with Microsoft 365 apps] reached over 30 million paid seats, reflecting the confidence customers are placing in us to power their AI transformation," said CEO Satya Nadella in the earnings release.

Microsoft's cloud demand still exceeds its capacity, but the company is adding capacity at a lightning pace. Nadella said on the earnings call that the company added 31 new data centers across 5 continents in the quarter, bringing its total to 88 new data centers this year.

Looking ahead

On the earnings call, CFO Amy Hood provided rosy guidance. For the first quarter of fiscal 2027, the company expects revenue of $89.85 to $90.95 billion, representing year-over-year growth of 16% to 17%, "with accelerating commercial growth partially offset by the impact from the [challenging] PC market dynamics."

For the full year fiscal 2027, Hood said the company continues to "expect another fiscal year of double-digit revenue and operating income. .... In addition, we expect to remain free cash flow positive in FY27."

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.