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what it is
Microsoft sells the software your office uses, the cloud your company rents, and the AI tools management wants in every slide deck.
how it gets paid
Last year Microsoft made $281.7B in revenue. Productivity & Business Processes was the main engine at $121.1B, or 43% of sales.
why it's growing
Revenue grew 14.9% last year. Cloud kept doing the lifting. Microsoft also said Azure growth should stay strong at about 37% in the December quarter.
what just happened
Microsoft posted fiscal Q2 2026 revenue of $81.3B and EPS of $4.14, ahead of the $3.85 estimate.
At a glance
A++ balance sheet — fortress balance sheet — as safe as it gets
100/100 earnings predictability — you can trust these numbers
33.7x trailing p/e — you're paying up for this one
0.8% dividend yield — cash in your pocket every quarter
25.5% return on capital — every dollar works hard here
xvary composite: 92/100 — above average
What they do
Microsoft sells the software your office uses, the cloud your company rents, and the AI tools management wants in every slide deck.
Your files live in Microsoft 365, your meetings run through Teams, and your company’s apps increasingly sit on Azure. Leaving is painful because retraining people and moving systems costs time and money. That stickiness shows up in numbers: Microsoft held a 45.6% operating margin in fiscal 2025 on $281.7 billion of revenue.
How they make money
$281.7B
annual revenue · their business grew +14.9% last year
Productivity & Business Processes
$121.1B
+14.9%
Intelligent Cloud
$107.0B
+29.0%
More Personal Computing
$53.5B
+14.9%
The products that matter
enterprise productivity software
Productivity & Business Processes
$68.3B revenue · 43% of sales
it's the largest segment at $68.3B, and 43% of revenue from tools like office and linkedin gives microsoft a daily seat in enterprise workflows.
largest segment
cloud and ai infrastructure
Intelligent Cloud
$60.4B revenue · 38% of sales
this $60.4B segment makes up 38% of revenue, and it is where the market expects AI demand to justify today's premium multiple.
the key battleground
windows, gaming, devices
More Personal Computing
$30.2B revenue · 19% of sales
at $30.2B, this is still a real business, but 19% of sales means it matters more for stability than for the next leg of the growth story.
cyclical piece
Key numbers
$327B
2026 sales est.
Wall Street expects fiscal 2026 revenue of $327B versus $281.7B in fiscal 2025. Plain English: investors still expect Microsoft to add about $45.3B of annual sales in one year.
45.6%
operating margin
Operating margin → profit after running the business → so what: Microsoft keeps about 46 cents from each revenue dollar before taxes and interest.
25.5%
return on capital
Return on capital → profit generated from the money invested in the business → so what: Microsoft is still turning scale into cash better than most large companies.
33.7x
trailing p/e
Price-to-earnings ratio → how much investors pay for each dollar of profit → so what: the stock is expensive enough that merely good results may not be enough.
Financial health
A++
strength
- balance sheet grade A++ — the absolute highest — fortress balance sheet
- risk rank 1 — safer than 95% of stocks
- price stability 85 / 100
- long-term debt $35.4B (1% of capital)
- net profit margin 38.4% — keeps 38 cents of every dollar in revenue
- return on equity 27% — $0.27 profit for every $1 investors have put in
A++ with balance sheet grade and risk rank standing out. your money faces less risk here than at most public companies.
Total return vs. market
You invested $10,000 in MSFT 3 years ago → it's now worth $19,680.
The index would have given you $14,770.
source: institutional data · total return
What just happened
beat estimates
Microsoft posted fiscal Q2 2026 revenue of $81.3B and EPS of $4.14, ahead of the $3.85 estimate.
Cloud kept doing the lifting. Microsoft also said Azure growth should stay strong at about 37% in the December quarter, which matters because AI demand is the whole debate now.
$81.3B
revenue
$4.14
eps
68.5%
gross margin
the number that mattered
Azure growth of about 37% is the key number because investors are treating Microsoft less like a software company and more like an AI infrastructure toll road.
-
shares of microsoft are down 5% in price since our october review.
-
the decline can be attributed in part to market concern that investments in artificial intelligence (ai) are not paying off as quickly as hoped.microsoft reported overall strong results for the fiscal first quarter of 2026 (year ends june 30th), yet its share price dipped in response. the tech giant’s investments in openai (which reduced quarterly net income by $3.1 billion), as well as its forecast for higher capital expenditure spending spooked investors.
-
meanwhile, the top line rose 18% vs. prior year, thanks to increasing demand for ai solutions and the robust adoption of copilot features across various domains.microsoft will probably post another round of strong results for the december period. (note: microsoft was scheduled to issue its second-quarter earnings release shortly after this report went to press.) we think demand for ai-powered tools such as copilot and services like azure will continue to climb and support a further top-line advance.
-
leadership expects azure growth to remain strong, with revenue projected to grow about 37% in the december quarter.however, the company acknowledges that azure will likely remain capacity-constrained through at least the end of the fiscal year due to the rapid acceleration in demand for ai and cloud services.
-
to address this, microsoft is ramping up investments in gpus, cpus, and datacenter infrastructure.while increased capital spending may temporarily weigh on margins, we think it helps position the company for long-term growth. by expanding its infrastructure, microsoft can accommodate more customers, scale its operations, and enhance its ability to deliver advanced ai and cloud solutions.
source: company earnings report, 2026
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What could go wrong
the #1 risk is ai infrastructure spending outrunning cloud monetization.
high
ai capex shows up before ai profit does
microsoft is ramping gpus and data centers aggressively. if that spending rises faster than customers convert into high-margin cloud revenue, margins become the story.
this pressure runs straight through the $60.4B Intelligent Cloud segment and the 35.7% company-wide net margin.
med
cloud competition gets more expensive
azure is large, but this market does not hand out easy winners. tougher pricing or slower share gains would matter because cloud is 38% of revenue and carries a lot of investor expectation.
a slower cloud engine would hit the part of the business investors currently care about most: $60.4B of annual revenue.
med
regulators keep looking at software bundling
microsoft's moat comes from putting many products in the same room. that also attracts scrutiny. any forced changes to packaging or distribution could pressure the $68.3B productivity franchise.
the exposure is not hypothetical — Productivity & Business Processes is 43% of revenue.
low
pc and consumer weakness drags on the old microsoft businesses
windows, devices, and gaming are still meaningful. they are also more cyclical than office and cloud. weak consumer demand would show up here first.
that exposure sits in the $30.2B More Personal Computing segment, or 19% of revenue.
at 33.7x trailing earnings, you are not paying for microsoft to merely stay good. you are paying for the AI spending wave to become a profit story without breaking the margin profile that makes this company special.
source: institutional data · regulatory filings · risk analysis
Pay attention to
earnings
next earnings report
the next quarter needs to show the same thing again: strong cloud demand, visible AI monetization, and no ugly surprise in margins.
trend
azure growth versus capacity limits
management pointed to azure growth around 37%, but also said capacity remains tight. demand is great. unmet demand still does not book revenue.
risk
ai spending discipline
watch whether higher gpu and data center spending starts eating into the 35.7% net margin more than investors expected.
metric
cloud mix inside the $158.9B revenue base
the more of microsoft that comes from cloud and recurring software, the easier it is for the premium multiple to hold.
Analyst rankings
short-term outlook
top 20%
momentum score 2 — analysts expect above-average price performance in the year ahead. in human-speak, they still like it.
risk profile
safest 5%
stability score 1 — lower risk of permanent capital damage than almost any stock in the dataset.
chart momentum
top 5%
technical score 1 — the chart still ranks near the top even after the recent pullback.
earnings predictability
100 / 100
the company tends to do what management says it will do. that is rarer than it should be.
source: institutional data
Institutional activity
institutions have been net buying for 3 consecutive quarters — 2,731 buyers vs. 2,543 sellers in 3q2025. total institutional holdings: 5.4B shares. net buying for 3 quarters.
source: institutional data
Price targets
3-5 year target range
$397
$767
$460
current price
$582
target midpoint · +27% from current · 3-5yr high: $860 (+85% · 17% ann'l return)
Want the deeper analysis?
The full deep dive: dcf model, scenario analysis, competitive moat breakdown, and quarterly tracking — everything on this page, taken further.
see plans from $5/moThe deep dive
MSFT
xvary deep dive
hold
composite 92/100
$582
+27% upside from current price
33.7x
forward p/e
$35.4B
long-term debt
2.2%
owner earnings yield
what the street is missing
Wall Street is still treating Microsoft like a normal big tech stock. It is not normal when you have 100 earnings predictability, a 45.6% operating margin, and just $35.4B of long-term debt, or 1% of capital.
intrinsic value
You are paying up for quality, but quality is real here. If Microsoft gets to $15.70 in fiscal 2026 EPS and the market keeps awarding a premium multiple, the $582 18-month target is not heroic.
This thesis dies if AI spending keeps rising while revenue growth slips below the projected 12.5% and Azure loses its growth premium. If that happens, the stock can still be a great business and a bad investment.
what's in the full report
Why 45.6% margins matter most
Azure carries the valuation burden
Office is still the cash engine
33.7x earnings leaves little mercy
A++ balance sheet changes the math
AI capex needs faster proof
Why $397 is not crazy
What would make me again
read the full report
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