Microsoft Corporation (MSFT) | Investment Case

1. Company Snapshot

1.a. 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.

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1.b. Last Insights on MSFT

Microsoft faces concerns over increasing AI spending, prompting investor rotation into momentum plays. The company's robust Azure growth and AI excitement have driven its stock, but rising capital expenditures have raised questions about return on investment. Despite strong Q1 results, with revenue and EPS surpassing estimates, investors are cautious. Raymond James Financial's lowered price target from $630 to $600 also impacted sentiment. Heavy AI infrastructure spending and OpenAI-related losses have contributed to a cautious outlook.

1.c. Company Highlights

Last Price	480.84
Change Percentage	0.65%
Open	479.52
Previous Close	477.73
Market Cap ( Millions)	3574088
Volume	21899020
Year High	555.45
Year Low	344.79
M A 50	508.85
M A 200	469.13

FCF Yield	2.18%
Dividend Yield	0.71%
ROE	31.53%
Debt / Equity	16.68%
Net Debt / EBIDTA	18.65%
Price To Book	9.84
Price Earnings Ratio	34.07
Price To FCF	45.81
Price To sales	12.16
EV / EBITDA	21.21

2. Microsoft's Strong Q1 FY2026 Earnings: Cloud and AI Drive Growth

Microsoft delivered a robust financial performance in its fiscal year 2026 first quarter, with revenue reaching $77.7 billion, up 18% and 17% in constant currency. Gross margin dollars increased 18% and 16% in constant currency, while operating income rose 24% and 22% in constant currency. Earnings per share (EPS) came in at $4.13, beating analyst estimates of $3.67 and representing a 23% increase. The strong EPS performance was driven by the company's cloud and AI offerings, with Microsoft Cloud revenue growing 26% to $49.1 billion.

Publication Date: Oct -31

                                    📋 Highlights
                                    Cloud Revenue Growth::
                                                Microsoft Cloud revenue hit $49.1 billion, up 26% YoY, driven by Azure’s 40% growth in constant currency.
Commercial RPO Surge::
                                                Commercial Remaining Performance Obligation (RPO) rose 51% YoY to $392 billion, with a 2-year weighted average duration.
AI Partnership Expansion::
                                                OpenAI’s $250 billion Azure commitment and 80,000 Azure customers (80% of Fortune 500) highlight AI-driven growth momentum.
Copilot Adoption::
                                                900 million monthly active users for AI features and 150 million for first-party Copilots, with 90% of Fortune 500 using Microsoft 365 Copilot.
Financial Strength::
                                                Revenue reached $77.7 billion (18% growth), $45.1 billion cash flow, and $10.7 billion returned to shareholders via dividends/share repurchases.

                                

Cloud and AI Drive Revenue Growth

The company's cloud revenue surpassed $49 billion, driven by a 40% growth in Azure and other Cloud services revenue. Azure took share again this quarter, with 80,000 customers, including 80% of the Fortune 500, using Azure AI Foundry to build their own AI apps and agents. Microsoft 365 Copilot is also seeing rapid adoption, with over 90% of the Fortune 500 using it. The company's AI platform and family of Copilots are driving growth, with 900 million monthly active users of AI features and 150 million monthly active users of first-party Copilots.

Valuation and Growth Expectations

Microsoft's current valuation metrics indicate a premium, with a P/E Ratio of 37.25 and P/S Ratio of 13.3. The company's return on equity (ROE) stands at 31.53%, and return on invested capital (ROIC) is 21.94%. Analysts estimate next year's revenue growth at 16.3%, which may justify some of the premium. However, the EV/EBITDA ratio of 23.18 suggests that the company's valuation is still relatively high.

Operational Highlights and Guidance

For Q2, Microsoft expects revenue of $79.5 billion to $80.6 billion, or growth of 14% to 16%, with operating margins relatively flat year-over-year. The company expects strong growth in Azure, with revenue growth of approximately 37% in constant currency, but notes that it will be capacity constrained through at least the end of the fiscal year. Microsoft's confidence in investing comes from its growing book of business and efficient use of resources, with a focus on creating systems that can help customers and drive value.

Investment Implications

Microsoft's strong financial performance and growth prospects make it an attractive investment opportunity. However, investors should be aware of the potential risks, including concentration risk and capacity constraints. The company's mitigation strategies, such as building a fungible fleet and prioritizing resource allocation, should help alleviate some of these concerns. Overall, Microsoft's robust financial performance and growth prospects position it well for continued success.

3. NewsRoom

LG Elec says Microsoft and LG affiliates pursuing cooperation on data centres

01:41

Source: reuters.com

Overlooked Sectors Find Promise While NVDA, AMD & MSFT Show Tech Muscles

Dec -04

Source: youtube.com

Could Microsoft Be a Multimillionaire-Maker Stock?

Dec -04

Source: fool.com

I Think These Are the 3 Best AI Stocks to Buy in December

Dec -04

Source: fool.com

Dow Jones Today: Major Stock Indexes Little Changed; Weekly Jobless Claims Unexpectedly Fall; Inflation Data on Tap Tomorrow

Dec -04

Source: investopedia.com

Anthropic Just Deepened Its Partnership With Nvidia. Could This Push Nvidia Toward Its Next Trillion-Dollar Milestone?

Dec -04

Source: fool.com

Microsoft to lift productivity suite prices for businesses, governments

Dec -04

Source: reuters.com

Microsoft will raise prices of commercial Office subscriptions in July

Dec -04

Source: cnbc.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (13.50%)

6. Segments

Intelligent Cloud

Expected Growth: 15.0%

The segment is expected to experience high growth due to the increasing adoption of cloud computing, driven by the need for scalability, flexibility, and cost-effectiveness. Azure's strong position in the market and Microsoft's continued investment in AI and IoT capabilities will drive growth.

Productivity and Business Processes

Expected Growth: 10.0%

The segment is expected to grow due to the increasing demand for remote work solutions, driven by the shift to hybrid work models. The integration of LinkedIn and Office will continue to enhance the segment's offerings, driving growth through increased user adoption and subscription-based services.

More Personal Computing

Expected Growth: 8.0%

The segment is expected to experience moderate growth due to the ongoing demand for personal computing devices, particularly in the gaming and education sectors. The growth of Surface and gaming consoles will contribute to the segment's growth, driven by innovation and updates to existing products.

7. Detailed Products

Azure

Microsoft Azure is a cloud computing platform and set of services that enables users to build, deploy, and manage applications and services through Microsoft-managed data centers across the globe.

Microsoft 365

Microsoft 365 is a bundle of software and services that includes Windows 10, Office 365, and Enterprise Mobility + Security, designed to provide a secure and productive computing environment.

Dynamics 365

Dynamics 365 is a line of enterprise resource planning (ERP) and customer relationship management (CRM) software applications, designed to help businesses manage their financial, supply chain, and customer relationships.

Visual Studio

Visual Studio is a suite of integrated development environment (IDE) products that provide a comprehensive set of tools for software development, testing, and debugging.

Xbox

Xbox is a line of video game consoles, including the Xbox One, Xbox Series X, and Xbox Series S, designed to provide an immersive gaming experience.

LinkedIn Learning (formerly Lynda.com)

LinkedIn Learning is an online learning platform that provides video courses and tutorials on a wide range of topics, including business, technology, and creative skills.

Microsoft Office

Microsoft Office is a suite of productivity software applications, including Word, Excel, PowerPoint, and Outlook, designed to help users create, edit, and manage documents, spreadsheets, and presentations.

Power Platform

Power Platform is a low-code development environment that enables users to create custom business applications, including Power Apps, Power Automate (formerly Microsoft Flow), and Power BI.

Windows

Windows is a family of operating systems, including Windows 10, Windows Server, and Windows IoT, designed to provide a secure and reliable computing environment.

8. Microsoft Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

Microsoft's products and services have a high degree of differentiation, making it difficult for substitutes to emerge. Additionally, the company's strong brand recognition and customer loyalty also reduce the threat of substitutes.

Bargaining Power Of Customers

Microsoft's customers have some bargaining power due to the availability of alternative products and services. However, the company's strong brand recognition and customer loyalty, as well as its ability to offer a wide range of products and services, reduce the bargaining power of customers.

Bargaining Power Of Suppliers

Microsoft has a diverse supplier base, which reduces the bargaining power of individual suppliers. Additionally, the company's strong financial position and ability to negotiate contracts also reduce the bargaining power of suppliers.

Threat Of New Entrants

The threat of new entrants is low due to the high barriers to entry in the technology industry. Microsoft's strong brand recognition, customer loyalty, and significant investments in research and development make it difficult for new entrants to compete.

Intensity Of Rivalry

The technology industry is highly competitive, and Microsoft faces intense rivalry from established players such as Apple, Google, and Amazon. The company must continually innovate and invest in research and development to maintain its competitive position.

9. SWOT Analysis

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

	Value
Debt Weight	22.53%
Debt Cost	4.28%
Equity Weight	77.47%
Equity Cost	8.50%
WACC	7.55%
Leverage	29.08%

11. Quality Control: Microsoft Corporation passed 7 out of 9 key points

Strong Liquidity

Low Debt

Strong Interest Coverage

Healthy Cash Flow

Operating Efficiency

Strong Return On Equity

Consistent Revenue Growth

Consistent Operating Cash Flow Growth

Margin Improvement

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Microsoft

A-Score: 6.0/10

Value: 0.5

Growth: 7.9

Quality: 8.5

Yield: 2.0

Momentum: 8.0

Volatility: 9.3

1-Year Total Return ->

Oracle

A-Score: 4.9/10

Value: 2.2

Growth: 6.8

Quality: 6.0

Yield: 2.0

Momentum: 9.0

Volatility: 3.3

1-Year Total Return ->

CrowdStrike

A-Score: 4.8/10

Value: 2.0

Growth: 8.8

Quality: 4.8

Yield: 0.0

Momentum: 9.0

Volatility: 4.3

1-Year Total Return ->

Fortinet

A-Score: 4.8/10

Value: 0.8

Growth: 9.1

Quality: 8.5

Yield: 0.0

Momentum: 5.5

Volatility: 4.7

1-Year Total Return ->

Adobe

A-Score: 4.7/10

Value: 3.0

Growth: 7.7

Quality: 9.0

Yield: 0.0

Momentum: 1.5

Volatility: 7.3

1-Year Total Return ->

Synopsys

A-Score: 3.7/10

Value: 0.9

Growth: 7.3

Quality: 7.2

Yield: 0.0

Momentum: 3.5

Volatility: 3.3

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

14.29%

Short term Time

10.0

Long-Term Growth

2.00%

WACC

7.55%

Microsoft Corporation - US5949181045

1. Company Snapshot

1.a. Company Description

1.b. Last Insights on MSFT

1.c. Company Highlights

Less Volatile

Better Quality

Expensive

Earnings Beats

Revenues Beats

Higher Growth

2. Microsoft's Strong Q1 FY2026 Earnings: Cloud and AI Drive Growth

Cloud and AI Drive Revenue Growth

Valuation and Growth Expectations

Operational Highlights and Guidance

Investment Implications

3. NewsRoom

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (13.50%)

6. Segments

Intelligent Cloud

Expected Growth: 15.0%

Productivity and Business Processes

Expected Growth: 10.0%

More Personal Computing

Expected Growth: 8.0%

7. Detailed Products

Azure

Microsoft 365

Dynamics 365

Visual Studio

Xbox

LinkedIn Learning (formerly Lynda.com)

Microsoft Office

Power Platform

Windows

8. Microsoft Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

Bargaining Power Of Customers

Bargaining Power Of Suppliers

Threat Of New Entrants

Intensity Of Rivalry

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

11. Quality Control: Microsoft Corporation passed 7 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

480.84$

Current Price

480.84$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA