After years of stagnation, there are finally signs that

Microsoft's

(MSFT) - Get Report

stock may be poised for a comeback.

If the turnaround occurs -- and there are plenty of

skeptics who say it won't -- the stock chart won't look anything like a hockey stick. And if the software giant stumbles in just one quarter over the next 18 months or so, or if the next generation of Windows doesn't ship on time, or worse, if it fails to give buyers a reason to upgrade, all bets are off.

Not surprisingly, there is more enthusiasm for Microsoft on the sell side than on the buy side. But interviews with institutional holders over the last few months reveal a definite shift in tone.

In March, Pat Adams, chief investment officer of Choice Funds, which holds the stock, said, "There's no real reason to sell Microsoft now, but there's no compelling reason to buy."

Now, he says: "The stock is ready to move on any positive news; it's cheap, it's a monopoly, it has a floor under it."

Indeed, Microsoft is currently trading at anywhere from 16 to 19 times forward earnings, depending on whose estimates are used, a relatively small premium to the

S&P 500's

17.2 times.

Gus Zinn, an analyst with Waddell & Reed Investment Management, also was guardedly positive. "There's been a slight improvement in sentiment. On a relative basis vs. other stuff, it looks better," he says, noting

IBM's

(IBM) - Get Report

recent miss and weak performances by

Oracle

(ORCL) - Get Report

and other software makers.

The first step in Microsoft's recovery will be visible after the close on Thursday, when the world's largest software company and high-tech bellwether is expected to deliver a quarter that likely will be in line or slightly better than Wall Street's expectations.

One key factor: PC sales. While Microsoft was expecting 9% unit growth in PCs in the March quarter, market researcher IDC now estimates that worldwide sales grew by about 11%. And because 32% of Microsoft's revenue is directly tied to new PC shipments, the increase is an important indicator of the company's business, Goldman Sachs analyst Rick Sherlund wrote in a note to clients. Goldman Sachs has done investment banking for Microsoft.

But the company's earnings per share figure is going to be a bit tricky this quarter because of a number of charges, including one that was added quite late. So the headline number to keep in mind is 24 cents a share. Here's why:

In January, Microsoft told investors to expect EPS of 27 cents to 28 cents, including stock-based compensation costs, on revenue ranging from $9.7 billion to $9.8 billion. It's important to note that Microsoft reports only under generally accepted accounting principles, while most sell-siders still present their analyses on a non-GAAP, or pro forma, basis.

The Thomson First Call earnings consensus is 32 cents, implying a 3-cent or 4-cent hit related to the stock. A smaller sample of analysts who log GAAP figures expects 28 cents a share.

But there's one more charge. Earlier in the month, Microsoft announced a $714 million hit related to a variety of antitrust and other legal matters. The newest charge, which analysts translated to about 4 cents a share, is not reflected in the First Call numbers; if it were, the consensus would be 24 cents a share.

Prudential analyst Brent Thill, who is expecting a pro forma profit of 31 cents a share, noted that the company earned 34 cents a share last year on the same basis. The discrepancy, he wrote, is a result of lowered interest income, following the $3-a-share special dividend in December.

With the third quarter looking solid, investors will focus intently on guidance for the fourth quarter and even more importantly, for fiscal 2006.

UBS analyst Heather Bellini says she expects top- and bottom-line growth to accelerate in 2006. "Revenue growth is likely to come from the launch of a series of new products across the company and EPS acceleration is likely to come from tighter expense controls, an easy comp on the interest income line and share buybacks."

Most significant of those new products is Longhorn, the long-awaited successor to Windows XP, expected to launch in time for the 2006 holiday season. UBS does not have an investment banking relationship with Microsoft.

Microsoft Chairman Bill Gates showed off a preliminary version of the new operating system at the company's annual

Windows Hardware Engineering Conference earlier this week, to mostly positive reviews.

Writing before the conference, Sanford C. Bernstein & Co. analyst Charles Di Bona said he believes Longhorn and related components will add $3.59 billion to Microsoft's top line from fiscal 2006 to fiscal 2010. He said that a beta, or preview, version of the software, expected this summer, may serve as a catalyst for Microsoft's stock.

"With this tangible evidence that Longhorn is indeed on the horizon, we suspect that investors may begin to focus on the potential upside to Longhorn, rather than on the delays in its launch," Di Bona noted. Bernstein does not have a banking relationship with Microsoft.

Still, Microsoft has a lot to prove. After all, its stock has appreciated only 8% in the last two years, while technology issues as a whole have gained four times as much.

"Tech has been floundering all year," says Cody Willard, partner in a buy-side firm and a contributor to

RealMoney.com

,

TheStreet.com's

subscription site. "People will care after the stock moves again."