Microsoft (MSFT) AI Stock Analysis

• Market Cap: $2.97T
• Dividend Yield: 0.71%
• Average Volume (3M): 38.04M
• Price to Earnings (P/E): 25.0
• Beta (1Y): 1.02
• Revenue Growth: 16.67%
• EPS Growth: 28.60%
• Country: US
• Employees: 228,000
• Sector: Technology
• Sector Strength: 88
• Industry: Software - Infrastructure
• EPS (TTM): 4.14
• Shares Outstanding: 7,425,629,000
• 10 Day Avg. Volume: 32,527,475
• 30 Day Avg. Volume: 38,040,035
• 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: 0.97
• Enterprise Value/Revenue: 9.46
• Enterprise Value/Gross Profit: 13.79
• Enterprise Value/Ebitda: 15.09
• 1Y Price Target: $594.02
• Price Target Upside: 54.50% Upside
• Rating Consensus: Strong Buy
• Number of Analyst Covering: 36
• EPS Forecast (FY): N/A
• Revenue Forecast (FY): N/A

• Rating: 74 Outperform
• Price Target: $486.00 ▲(26.41% Upside)
• Action: Reiterated Date: 01/30/26
• Date: Action: Reiterated 01/30/26

The score is driven primarily by exceptional profitability and balance-sheet strength, supported by bullish AI-led demand and constructive forward guidance. Offsetting these positives are weak current technicals (price below key moving averages with negative MACD) and near-term cash flow/margin pressure tied to elevated AI infrastructure spending; valuation remains premium with a low dividend yield.

Positive Factors

Elite Profitability

Very high gross and net margins indicate durable earnings power from software and cloud-scale economics. These margins support reinvestment in AI, steady operating leverage and resilient cash generation across cycles, underpinning long‑term return on capital.

Balance Sheet Strength

Low leverage and a large equity base provide material financial flexibility. This balance sheet supports heavy AI capex, acquisitions, buybacks and dividend policy without stressing liquidity, reducing refinancing risk and preserving strategic optionality over the next several quarters.

Scale in Cloud & AI Adoption

Rapid adoption of Azure, Foundry/Fabric and Copilots demonstrates durable demand and product embedding across enterprises. Large RPO/bookings and rising high‑spend customers reinforce competitive moat and recurring revenue, supporting multi‑year structural growth from AI workloads.

Negative Factors

High AI CapEx and FCF Conversion

Substantial short‑lived AI hardware spending materially reduces free‑cash‑flow conversion and creates near‑term cash efficiency headwinds. If elevated GPU/CPU capex persists, it could constrain discretionary returns or require higher operating margins to restore historical cash conversion.

Concentration Risk (OpenAI)

Heavy reliance on a single large AI customer concentrates revenue and booking visibility, raising negotiation and timing risk. Large contract shifts or changes in supply allocation could cause quarter‑to‑quarter volatility in cloud bookings and utilization for years ahead.

Margin Pressure & Capacity Allocation

AI infrastructure and allocation trade‑offs compress cloud gross margins and can create revenue recognition variability. Ongoing short‑lived asset mix and capacity prioritization may keep cloud margins and Azure throughput under pressure until supply and asset economics normalize.

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

Income statement and balance sheet quality are best-in-class (very high margins, strong ROE, modest leverage), supporting a high score. The main offset is cash flow: despite strong absolute OCF/FCF, recent free-cash-flow conversion weakened and TTM FCF growth is sharply negative, indicating near-term cash efficiency/momentum pressure.

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	TTM	Jun 2025	Jun 2024	Jun 2023	Jun 2022	Jun 2021
Income Statement
Total Revenue	305.45B	281.72B	245.12B	211.91B	198.27B	168.09B
Gross Profit	209.50B	193.89B	171.01B	146.05B	135.62B	115.86B
EBITDA	191.38B	160.16B	133.01B	105.14B	100.24B	85.13B
Net Income	119.26B	101.83B	88.14B	72.36B	72.74B	61.27B
Balance Sheet
Total Assets	665.30B	619.00B	512.16B	411.98B	364.84B	333.78B
Cash, Cash Equivalents and Short-Term Investments	89.46B	94.56B	75.53B	111.26B	104.75B	130.26B
Total Debt	57.61B	60.59B	67.13B	59.97B	61.27B	67.78B
Total Liabilities	274.43B	275.52B	243.69B	205.75B	198.30B	191.79B
Stockholders Equity	390.88B	343.48B	268.48B	206.22B	166.54B	141.99B
Cash Flow
Free Cash Flow	77.41B	71.61B	74.07B	59.48B	65.15B	56.12B
Operating Cash Flow	160.51B	136.16B	118.55B	87.58B	89.03B	76.74B
Investing Cash Flow	-94.34B	-72.60B	-96.97B	-22.68B	-30.31B	-27.58B
Financing Cash Flow	-53.30B	-51.70B	-37.76B	-43.94B	-58.88B	-48.49B

Microsoft Technical Analysis

• Technical Analysis Sentiment: Negative
• Last Price: 384.47
• 50DMA: Negative
• 100DMA: Negative
• 200DMA: Negative
• MACD: Positive
• RSI: Positive
• STOCH: Positive

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For MSFT, the sentiment is Negative. The current price of 384.47 is below the 20-day moving average (MA) of 417.54, below the 50-day MA of 451.98, and below the 200-day MA of 485.68, indicating a bearish trend. The MACD of -18.26 indicates Positive momentum. The RSI at 27.64 is Positive, neither overbought nor oversold. The STOCH value of 10.22 is Positive, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for MSFT.

Microsoft Peers Comparison

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
MSFT	74 Outperform	$2.97T	25.00	34.39%	0.71%	16.67%	28.60%
ADBE	74 Outperform	$108.03B	15.52	55.43%	―	10.53%	34.24%
AAPL	74 Outperform	$3.88T	33.45	152.02%	0.38%	―	―
GOOGL	74 Outperform	$3.67T	28.07	35.70%	0.26%	13.55%	34.26%
AMZN	67 Neutral	$2.20T	28.56	22.29%	―	11.48%	50.70%
ORCL	65 Neutral	$448.85B	29.35	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.