Microsoft Must Say This on Oct. 28 or the Stock Will Go Into Free Fall

Microsoft (NASDAQ: MSFT) has a major event coming up on Oct. 28: its earnings report for its fiscal 2027 first quarter, which ended Sept. 30. The tech giant has had an OK year overall. The stock started off calendar 2026 in a steady decline that sapped about 25% from its starting price by late March, rebounded partway, and then sank back to that low level again in June. But since then, it has sustained a rally and is now up about 10% for the year, though that still trails the S&P 500 (SNPINDEX: ^GSPC), which is up by almost 13%.

The question is whether Microsoft can finish the year strong or if there's another sell-off waiting in the wings. I think we'll get more clarity on that when it next reports results.

Azure's growth will be in focus

Microsoft is a massive tech company that does a lot of things, but at this point, there's really only one that matters: AI. There are essentially three legs to its AI strategy: Copilot, Azure, and its investment in and partnership with OpenAI.

The investment in OpenAI has made Microsoft a ton of money, and when the AI lab eventually goes public, that will put a huge gain on Microsoft's books. But that won't happen until 2027 at the earliest.

Copilot, Microsoft's internal generative AI platform that can interface with its Office productivity suite, also offers huge growth potential. In the company's fiscal 2026 Q4, which ended June 30, Copilot crossed 30 million paid seats. Its impressive growth is helping drive Microsoft's overall growth in its productivity and business processes segment.

However, I'd argue that its most important segment is Azure, its cloud computing platform. While Copilot and its OpenAI investment have the potential to make Microsoft a fair bit of money, they pale in comparison to what Azure can do. Azure is the key to Microsoft's future, but some red flags are starting to appear.

Azure's growth rate hasn't taken off like its peers

Azure will see a greater growth rate than most of Microsoft's other AI endeavors because it's attracting many different AI start-ups. It's the service that started OpenAI's association with Microsoft, and with large numbers of other organizations starting to run AI workloads on Azure's servers, it is on course for huge growth over the next few years.

Azure has been Microsoft's fastest-growing segment for years now; in fiscal Q4, it grew at a 43% clip. That was a slight acceleration from Q3's 40% growth and Q2's 39%. While those are solid growth rates, there is one issue I'm concerned with: Its growth isn't accelerating.

Azure has two primary competitors: Amazon Web Services and Alphabet's Google Cloud. Both have seen their cloud computing growth rates rapidly accelerate over the same time frame, and I think that is something investors need to grapple with.

Company	Calendar 2025 Q4 Cloud Growth Rate	Calendar 2026 Q1 Cloud Growth Rate	Calendar 2026 Q2 Cloud Growth Rate
Microsoft	39%	40%	43%
Amazon	24%	28%	37%
Alphabet	48%	63%	82%

Data sources: Microsoft, Amazon, and Alphabet. Note: Microsoft's fiscal Q4 is equivalent to calendar Q2.

Microsoft's chief competitors in the cloud infrastructure space are seeing rapid cloud growth acceleration, while Azure has only grown marginally. Alphabet also reports next on Oct. 28, while Amazon will deliver results the day after. If Azure continues to grow at a solid 40% or so rate, but Amazon starts to grow at a quicker rate, and Google Cloud reaches a triple-digit growth rate, Microsoft stock could slide in the wake of those reports just because it isn't keeping up with its peers.

These upcoming reports could also have long-term market share ramifications that might make Microsoft look like the least desirable cloud infrastructure stock to own. On the flip side, if Microsoft reports a major acceleration in Azure growth, that could ignite a rally for the stock. We'll see what happens on Oct. 28, but for now, I'm not adding any shares of Microsoft to my portfolio.

Keithen Drury has positions in Alphabet, Amazon, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.