Microsoft (MSFT) AI Stock Analysis

• Market Cap: $3.57T
• Dividend Yield: 0.71%
• Average Volume (3M): 22.35M
• Price to Earnings (P/E): 34.2
• Beta (1Y): 1.03
• Revenue Growth: 15.59%
• EPS Growth: 15.89%
• Country: US
• Employees: 228,000
• Sector: Technology
• Sector Strength: 88
• Industry: Software - Infrastructure
• EPS (TTM): 4.14
• Shares Outstanding: 7,432,377,400
• 10 Day Avg. Volume: 27,150,342
• 30 Day Avg. Volume: 22,345,581
• PEG Ratio: 2.34
• Price to Book (P/B): 10.76
• Price to Sales (P/S): 13.12
• P/FCF Ratio: 51.63
• Enterprise Value/Market Cap: 0.91
• Enterprise Value/Revenue: 10.66
• Enterprise Value/Gross Profit: 15.54
• Enterprise Value/Ebitda: 17.01
• 1Y Price Target: $603.95
• Price Target Upside: 25.40% Upside
• Rating Consensus: Strong Buy
• Number of Analyst Covering: 34
• EPS Forecast (FY): N/A
• Revenue Forecast (FY): N/A

• Rating: 77 Outperform
• Price Target: $545.00 ▲(13.16% Upside)

Strong fundamentals drive the score, led by high profitability, low leverage, and solid cash generation. The earnings call supports the outlook with robust AI and cloud growth guidance, though elevated CapEx and margin pressure temper it. Technicals are mixed and valuation is relatively expensive with a low yield, limiting upside from price/valuation factors.

Positive Factors

Cloud Revenue Growth

Strong growth in cloud revenue indicates Microsoft's leading position in the cloud market, driven by robust demand and strategic investments in Azure and AI technologies.

AI Investment

Significant AI investment underscores Microsoft's commitment to innovation, enhancing its competitive edge and potential for long-term growth in AI-driven markets.

Financial Performance

Strong financial performance with substantial revenue and earnings growth reflects Microsoft's effective business strategy and operational efficiency, supporting future stability.

Negative Factors

Azure Capacity Constraints

Capacity constraints in Azure may limit Microsoft's ability to fully capitalize on cloud demand, potentially impacting growth and customer satisfaction in the near term.

Gaming Revenue Decline

A decline in gaming revenue suggests challenges in Microsoft's gaming segment, which could affect overall revenue diversification and growth if not addressed.

Leadership Change

Leadership changes can lead to strategic shifts and potential disruptions in governance, affecting Microsoft's long-term strategic direction and execution.

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 several key streams. The largest portion comes from its cloud computing services, particularly through Azure, which has seen significant growth as businesses increasingly adopt cloud solutions. Additionally, Microsoft earns substantial revenue from its Office 365 subscription services, providing productivity tools to both consumers and enterprises. The company also generates income from Windows operating system licensing, hardware sales such as Surface devices, and gaming through Xbox consoles and related services. Partnerships with enterprises, educational institutions, and governmental organizations further enhance its revenue streams, as does its focus on integrating artificial intelligence and machine learning into its products, driving demand and usage across its platforms.

Microsoft Financial Statement Overview

Summary

Best-in-class profitability and a strong balance sheet (high margins, low debt-to-equity, strong ROE) support a high score, but recent moderation in revenue growth and a notable step-down in free cash flow conversion and reported TTM FCF growth temper the outlook.

Income Statement

MSFT shows elite profitability and strong scale: TTM (Trailing-Twelve-Months) gross margin is ~68.8% and net margin is ~35.7%, with operating profitability also exceptionally high. Revenue has expanded steadily over the last several years (from ~$168B in 2021 to ~$282B in FY2025), though the TTM revenue growth rate (~4.0%) suggests a moderation in the most recent period versus prior years. Overall, earnings power remains very strong, with the main watch-item being the recent growth deceleration rather than profitability.

Balance Sheet

The balance sheet looks very healthy with modest leverage and a large equity base. TTM (Trailing-Twelve-Months) debt is ~$57.6B against ~$390.9B of equity (debt-to-equity ~0.17), an improvement from higher leverage levels earlier in the period. Returns on shareholder capital remain strong (TTM return on equity ~33.6%), supporting a high-quality profile. The primary limitation is not leverage stress, but simply that returns have been somewhat variable over time (still consistently strong).

Cash Flow

Cash generation is substantial (TTM operating cash flow ~$160.5B; free cash flow ~$77.4B), and operating cash flow exceeds net income (TTM ~1.09x), indicating solid cash earnings quality. However, free cash flow conversion to net income is only ~53% in TTM (vs. ~62–73% in prior years), and the provided TTM free cash flow growth is sharply negative (-77.5%), signaling a recent step-down in free cash flow momentum. Strength in absolute cash production is offset by weaker recent conversion and growth.

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

Microsoft Technical Analysis

• Technical Analysis Sentiment: Positive
• Last Price: 481.63
• 50DMA: Positive
• 100DMA: Negative
• 200DMA: Negative
• MACD: Negative
• RSI: Neutral
• STOCH: Negative

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 481.63 is above the 20-day moving average (MA) of 470.41, above the 50-day MA of 479.12, and below the 200-day MA of 484.37, indicating a neutral trend. The MACD of -3.59 indicates Negative momentum. The RSI at 56.08 is Neutral, neither overbought nor oversold. The STOCH value of 91.77 is Negative, 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
GOOGL	85 Outperform	$4.04T	33.00	35.45%	0.26%	13.55%	34.26%
MSFT	77 Outperform	$3.57T	34.19	32.24%	0.71%	15.59%	15.89%
ADBE	74 Outperform	$122.09B	17.93	55.43%	―	10.53%	34.24%
AAPL	72 Outperform	$3.80T	34.60	171.42%	0.38%	6.43%	22.85%
AMZN	71 Outperform	$2.62T	34.33	24.33%	―	11.48%	50.70%
ORCL	66 Neutral	$502.51B	32.87	70.60%	1.00%	11.08%	29.56%
Sector *	61 Neutral	$37.18B	12.37	-10.20%	1.83%	8.50%	-7.62%

Microsoft Corporate Events

Microsoft Shareholders Approve 2026 Stock Plan

On December 5, 2025, Microsoft held its Annual Shareholders Meeting where shareholders approved the 2026 Stock Plan, replacing the 2017 Stock Plan. The meeting also saw the re-election of 12 directors, approval of executive compensation, and the ratification of Deloitte & Touche LLP as the independent auditor for fiscal year 2026. Several shareholder proposals related to AI and human rights were not approved, indicating the company’s current strategic focus and shareholder priorities.

The most recent analyst rating on (MSFT) stock is a Buy with a $650.00 price target. To see the full list of analyst forecasts on Microsoft stock, see the MSFT Stock Forecast page.

Microsoft Reports Strong Q1 2026 Financial Results

On October 29, 2025, Microsoft announced its financial results for the first quarter of fiscal year 2026, ending September 30, 2025, highlighting a strong performance driven by its cloud and AI services. The company reported an 18% increase in revenue to $77.7 billion, a 24% rise in operating income to $38.0 billion, and a 12% growth in net income to $27.7 billion on a GAAP basis. The results reflect the growing demand for Microsoft’s cloud platform, with significant contributions from Microsoft 365, Azure, and other cloud services. The company also emphasized its continued investment in AI and cloud technologies to capitalize on future opportunities, while returning $10.7 billion to shareholders through dividends and share repurchases.

The most recent analyst rating on (MSFT) stock is a Buy with a $625.00 price target. To see the full list of analyst forecasts on Microsoft stock, see the MSFT Stock Forecast page.