It’s admittedly a wonderful problem to have, but it’s a problem nonetheless. Microsoft Corporation (NASDAQ:MSFT) is headed into this Wednesday’s earnings report with nothing not to like about the company or the stock.

Case(s) in point: The 40% rally MSFT stock has dished out over the course of the past 12 months is amazing, but the forward-looking P/E of 24.5 is still plenty palatable.

Meanwhile, though Amazon Web Services from Amazon.com, Inc. (NASDAQ:AMZN) is still the cloud-computing market leader, KeyBanc analyst Brent Bracelin believes Microsoft won market share away from AWS last quarter.

Also, the software giant is tilting the video game landscape in its favor, and the recent acquisition of Avere adds new hybrid computing options to its menu. Analysts are singing its praises, too.

And that’s what makes new entries into MSFT stock so scary here.

On a Roll and Picking Up Steam

Microsoft will report its fiscal Q2 results after the market closes this Wednesday, Jan. 31. Analysts are collectively expecting the company to report a profit of 86 cents per share on revenue of $28.9 billion. Microsoft turned $26.1 billion worth of sales into earnings of 80 cents per share in the same quarter a year earlier.

Respectable, even if not impressive? Not so fast. Bear in mind that Microsoft has topped earnings estimates in five of the past six quarters, and is apt to do so again. The company’s foray into the thick of the cloud-computing market has, to put it bluntly, worked out extremely well. Analysts expect similar growth for the top and bottom lines all the way through next year, too.

The trend hasn’t gone unnoticed either, nor has it gone unattributed. Instinet analyst Christopher Eberle wasn’t too shy to recently suggest CEO Satya Nadella and CFO Amy Hood were among the best corporate leaders in the world, making MSFT stock a buy largely by themselves.

In the meantime, its cloud-based revenue was up by more than double digits year-over-year for fiscal Q1, with more of the same on the way. Credit Suisse analyst Michael Nemeroff recently explained:

“Our new, proprietary survey (historically our surveys have been good leading indicators of business trends) suggests that momentum in Microsoft’s Commercial Cloud businesses should continue throughout 2018, at least.”

Nadella is even turning up the heat on projects that at one point hadn’t been priorities. One of them is video gaming, leveraging the relatively new Xbox One X.

Its new Game Pass, which allows subscription-based online access to a large array of video games (including new titles), could end up stealing business away from competitors Sony Corp (ADR) (NYSE:SNE) and Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY).

It’s all almost too good to be true. Problem is, everybody already knows it.

It’s All Relative

It’s admittedly a counterintuitive idea, on the surface. However, the premise makes some sense to veteran traders who’ve seen strange things more than a few times. The faulty premise? That “more good news” always translates into gains for a stock.

Like it or not, stocks don’t trade based on a company’s trailing results. They trade based on what the market thinks the company will do months into the future. That perception is shaped by current headlines, of course, making stock pricing an even more ambiguous matter than most traders care to admit.

For Microsoft stock, the current rhetoric is so bullish that it’s priced for perfection, and then some. It’s a liability simply because anything less than perfection could spark a wave of profit taking. Indeed, even something merely perceived as a problem could spark a selloff.

Traders don’t need a good excuse to justify a collective decision. They just need any excuse.

In the case of MSFT stock, things are doubly tricky, as analysts rate the stock, on a scale of 1.0 to 5.0 (where 1.0 is a “Strong Buy” and 5.0 is a “Sell”), at a 1.8. That’s not a perfect degree of bullishness, but by historical analyst standards, that’s reaching maximum altitude. It’s a problem simply because it leaves little room for upgrades that generally prod stocks in a bullish direction.

Bottom Line for MSFT Stock

Again, it’s admittedly a counterintuitive idea, particularly in the current market environment where stories have been everything and valuations have meant little. As long as traders continue to not overthink anything and just ride the wave, Microsoft stock can and likely will hitch a ride on that wave.

It’s also worth disclosing that this reporter doesn’t have any kind of bearish position on MSFT heading into the quarterly report.

Still, as the old adage goes, “Expect it when you least expect it.” Overbought Microsoft shares are ripe for some profit taking even if every accessible clue suggests otherwise. They just need the right kind of nudge.

Ironically, it may well be a bullish response to Wednesday’s report that does the trick, creating a blow-off top that leaves prudent traders little choice but to begin locking in the big gains they’ve reaped over the course of the past year.

Just something to think about.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.