Microsoft (MSFT) AI Stock Analysis

• Market Cap: $3.83T
• Dividend Yield: 0.65%
• Average Volume (3M): 20.67M
• Price to Earnings (P/E): 37.8
• Beta (1Y): 0.98
• Revenue Growth: 14.93%
• EPS Growth: 15.50%
• Country: US
• Employees: 228,000
• Sector: Technology
• Sector Strength: 88
• Industry: Software - Infrastructure
• EPS (TTM): 3.65
• Shares Outstanding: 7,433,166,500
• 10 Day Avg. Volume: 19,428,237
• 30 Day Avg. Volume: 20,673,832
• PEG Ratio: N/A
• Price to Book (P/B): N/A
• Price to Sales (P/S): N/A
• P/FCF Ratio: N/A
• Enterprise Value/Market Cap: 0.97
• Enterprise Value/Revenue: 13.24
• Enterprise Value/Gross Profit: 19.23
• Enterprise Value/Ebitda: 23.28
• 1Y Price Target: $625.78
• Price Target Upside: 22.70% Upside
• Rating Consensus: Strong Buy
• Number of Analyst Covering: 35

• Rating: 83 Outperform
• Price Target: $594.00 ▲(16.47% Upside)

Microsoft's strong financial performance and positive earnings call sentiment are the most significant factors driving the score. The company's robust growth in cloud and AI services, coupled with strategic investments, supports a positive outlook. However, the high valuation and mixed technical indicators suggest some caution is warranted.

Positive Factors

Cloud and AI Growth

Strong growth in cloud and AI services indicates robust demand and positions Microsoft as a leader in high-margin, scalable technology sectors.

Cash Generation

Robust cash generation supports strategic investments and shareholder returns, enhancing financial stability and growth potential.

Balance Sheet Strength

A strong balance sheet with low leverage provides Microsoft with financial flexibility to pursue growth opportunities and withstand economic downturns.

Negative Factors

High Capital Expenditure

High capital expenditures, while necessary for growth, could pressure cash flow and limit short-term financial flexibility.

On-Premises Server Business Decline

Decline in on-premises server business highlights challenges in traditional segments, potentially impacting overall revenue diversity.

AI Talent Defection

Loss of key AI talent to competitors could impact Microsoft's innovation capabilities and competitive edge in AI advancements.

Microsoft Business Overview & Revenue Model

Company Description

Microsoft Corporation develops, licenses, and supports software, services, devices, and solutions worldwide. The company operates in three segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. The Productivity and Business Processes segment offers Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, Microsoft Viva, and Skype for Business; Skype, Outlook.com, OneDrive, and LinkedIn; and Dynamics 365, a set of cloud-based and on-premises business solutions for organizations and enterprise divisions. The Intelligent Cloud segment licenses SQL, Windows Servers, Visual Studio, System Center, and related Client Access Licenses; GitHub that provides a collaboration platform and code hosting service for developers; Nuance provides healthcare and enterprise AI solutions; and Azure, a cloud platform. It also offers enterprise support, Microsoft consulting, and nuance professional services to assist customers in developing, deploying, and managing Microsoft server and desktop solutions; and training and certification on Microsoft products. The More Personal Computing segment provides Windows original equipment manufacturer (OEM) licensing and other non-volume licensing of the Windows operating system; Windows Commercial, such as volume licensing of the Windows operating system, Windows cloud services, and other Windows commercial offerings; patent licensing; and Windows Internet of Things. It also offers Surface, PC accessories, PCs, tablets, gaming and entertainment consoles, and other devices; Gaming, including Xbox hardware, and Xbox content and services; video games and third-party video game royalties; and Search, including Bing and Microsoft advertising. The company sells its products through OEMs, distributors, and resellers; and directly through digital marketplaces, online stores, and retail stores. Microsoft Corporation was founded in 1975 and is headquartered in Redmond, Washington.

How the Company Makes Money

Microsoft generates revenue through a diverse range of streams. The largest portion comes from its Productivity and Business Processes segment, which includes revenue from Office 365 subscriptions and LinkedIn. The Intelligent Cloud segment, driven by Azure cloud services, has become a significant growth area, providing high-margin services to businesses. The More Personal Computing segment includes revenue from Windows operating system licenses, Surface devices, and Xbox gaming products. Additionally, Microsoft earns revenue from advertising through its search engine, Bing, and partnerships with various companies, enhancing its overall financial performance. Strategic acquisitions, such as LinkedIn and GitHub, further bolster its offerings and revenue potential.

Microsoft Financial Statement Overview

Summary

Microsoft exhibits exceptional financial strength across all verticals. The company maintains high profitability and strong revenue growth, supported by a robust balance sheet with low leverage. Its cash flow generation is excellent, enabling strategic investments and shareholder returns. Despite significant capital expenditures, Microsoft sustains a strong free cash flow, affirming its superior financial management and resilience in the competitive software industry.

Income Statement

Microsoft's income statement shows strong financial health with robust revenue growth, increasing from $143 billion in 2020 to $282 billion in 2025. The gross profit margin remains high at 68.8% in 2025, indicating efficient cost management. The net profit margin improved to 36.1% in 2025 from 31.0% in 2020, reflecting enhanced profitability. EBIT and EBITDA margins are solid, standing at 45.6% and 56.8%, respectively, in 2025, demonstrating effective operational efficiency.

Balance Sheet

Microsoft's balance sheet is strong, with a debt-to-equity ratio of 0.18 in 2025, reflecting low leverage and financial stability. The return on equity (ROE) has been impressive, reaching 29.7% in 2025, indicating high profitability relative to shareholder's equity. The equity ratio of 55.5% underscores the company's solid financial footing, with a significant portion of its assets funded by shareholder equity.

Cash Flow

The cash flow statement highlights Microsoft's robust cash generation capabilities, with operating cash flow growing from $60.7 billion in 2020 to $136.2 billion in 2025. The free cash flow has remained strong, despite significant capital expenditures, reflecting efficient cash management. The operating cash flow to net income ratio is 1.34 in 2025, indicating efficient conversion of net income into cash. Free cash flow to net income ratio is 0.70, demonstrating healthy cash flow relative to earnings.

Breakdown	TTM	Dec 2025	Dec 2024	Dec 2023	Dec 2022	Dec 2021
Income Statement
Total Revenue	281.72B	281.72B	245.12B	211.91B	198.27B	168.09B
Gross Profit	193.89B	193.89B	171.01B	146.05B	135.62B	115.86B
EBITDA	160.16B	160.16B	133.01B	105.14B	100.24B	85.13B
Net Income	101.83B	101.83B	88.14B	72.36B	72.74B	61.27B
Balance Sheet
Total Assets	619.00B	619.00B	512.16B	411.98B	364.84B	333.78B
Cash, Cash Equivalents and Short-Term Investments	94.56B	94.56B	75.53B	111.26B	104.75B	130.26B
Total Debt	60.59B	60.59B	67.13B	59.97B	61.27B	67.78B
Total Liabilities	275.52B	275.52B	243.69B	205.75B	198.30B	191.79B
Stockholders Equity	343.48B	343.48B	268.48B	206.22B	166.54B	141.99B
Cash Flow
Free Cash Flow	71.61B	71.61B	74.07B	59.48B	65.15B	56.12B
Operating Cash Flow	136.16B	136.16B	118.55B	87.58B	89.03B	76.74B
Investing Cash Flow	-72.60B	-72.60B	-96.97B	-22.68B	-30.31B	-27.58B
Financing Cash Flow	-51.70B	-51.70B	-37.76B	-43.94B	-58.88B	-48.49B

Microsoft Technical Analysis

• Technical Analysis Sentiment: Positive
• Last Price: 510.02
• 50DMA: Negative
• 100DMA: Positive
• 200DMA: Positive
• MACD: Negative
• RSI: Neutral
• STOCH: Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For MSFT, the sentiment is Positive. The current price of 510.02 is above the 20-day moving average (MA) of 505.07, below the 50-day MA of 510.69, and above the 200-day MA of 446.17, indicating a neutral trend. The MACD of -0.49 indicates Negative momentum. The RSI at 52.70 is Neutral, neither overbought nor oversold. The STOCH value of 79.19 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Positive sentiment for MSFT.

Microsoft Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
MSFT	83 Outperform	$3.83T	37.78	33.28%	0.65%	14.93%	15.50%
AMZN	81 Outperform	2.47T	35.35	21.16%	―	10.87%	56.13%
AAPL	80 Outperform	3.55T	36.20	150.81%	0.43%	5.97%	0.15%
ADBE	79 Outperform	153.59B	22.55	59.11%	―	10.69%	35.23%
GOOGL	79 Outperform	3.02T	26.75	31.85%	0.33%	13.19%	34.51%
ORCL	71 Outperform	856.52B	70.99	51.51%	0.60%	9.67%	11.23%
Sector *	61 Neutral	$37.18B	12.37	-10.20%	1.83%	8.50%	-7.62%