Microsoft's $625 Billion Backlog Powers a Historic Rally

Microsoft shares surge pre-earnings, backed by a $625B revenue backlog and key OpenAI deal. Valuation discount meets AI investment thesis ahead of critical Q3 report.

Microsoft shares have just posted their strongest weekly performance in nearly a decade, surging nearly 14% in a powerful pre-earnings rally. The stock closed Friday’s session at 359.55 EUR, a level that still leaves it roughly 11% in the red for the year but marks a decisive 16% rebound from its March low. Behind this momentum lies a staggering financial anchor: a $625 billion backlog of contracted future revenue.

This figure, known as Commercial Remaining Performance Obligation, has surged 110% year-over-year. It provides a rare level of visibility for the company’s growth, particularly for its Azure cloud division. A significant portion is tied to a landmark commitment from OpenAI, which is obligated to spend an additional $250 billion on Azure services. Microsoft’s 27% stake in the AI pioneer is now valued at approximately $135 billion, with licensing rights secured until 2032.

Valuation Discount Meets AI Investment Thesis

Despite the sharp price advance, Microsoft’s valuation remains historically subdued. The stock currently trades at 23 times expected earnings, a steep discount to its multiple of nearly 40 last year. It is now priced cheaper than the broader S&P 500 and rivals like Alphabet and Apple. This discount has emerged alongside investor concerns over the massive capital expenditure required for artificial intelligence infrastructure, fears that recent analyst notes have sought to dispel.

Bernstein analyst Mark Moerdler reaffirmed his Outperform rating and a $641 price target, arguing the market’s skepticism is misplaced. His research suggests the lag between building new data center capacity and recognizing revenue from it is less than six months. Wolfe Research also issued an Outperform rating on April 16, offering broad support despite the high-cost environment. The company is simultaneously directing more capacity toward training its own high-margin AI models, an effort that does not impact its research and development margin.

The April 29 Litmus Test

All eyes are now on the earnings report scheduled for after the market closes on April 29. The results for the third fiscal quarter of 2026 will serve as a critical test for CEO Satya Nadella and CFO Amy Hood. Analysts are anticipating revenue growth of 16% and adjusted earnings per share of $4.04. The core question is whether Azure’s growth can justify the immense infrastructure investments.

In the previous quarter, Azure grew by 39%. The market expects this momentum to be sustained and further bolstered by the monetization of the Copilot AI assistant. Bank of America estimates Copilot now has 15 million paying users, representing about 3.5% of Microsoft 365’s commercial customer base, with the company reportedly hitting its sales targets for the March quarter. The strategic focus has shifted firmly toward paid subscriptions over free add-ons.

Technically, the rally is supported by rising trading volume, and the short-term moving average has crossed above the long-term one—a classic bullish signal. The Relative Strength Index (RSI) at 46.7 indicates the stock is not yet overbought. The next significant technical hurdle is the 200-day moving average, which sits near 405 EUR, still more than 11% above the current price.

Longer-term, Microsoft is developing its own suite of large AI models intended to serve as alternatives to those from OpenAI and Anthropic. For now, the $625 billion backlog provides a formidable foundation. The upcoming quarterly figures must demonstrate that the conversion of these contracts into tangible earnings is proceeding on track.