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Financial data on TradingView ↗Reported statements, ratios and ownership, alongside this research.
Microsoft sells cloud computing (Azure), workplace software (Microsoft 365, Teams, Copilot, Dynamics), LinkedIn, Windows, Xbox games and Bing search advertising. Its customers are mainly businesses and governments of every size, reached directly and through partners, plus consumers and device makers that preinstall Windows. [S1][S7]
In fiscal 2026 (year to 30 June 2026), Intelligent Cloud contributed $137.8 billion, mostly consumption-billed Azure; Productivity and Business Processes $140.0 billion, mostly per-user subscriptions; More Personal Computing $54.1 billion from Windows licences, Xbox content and search ads. [S1][S7]
Explore the research to see how business evidence informs assumptions and valuation.
Start with the business evidence, then follow the assumptions through to scenarios and valuation.
Financial data on TradingView ↗Reported statements, ratios and ownership, alongside this research.
Valuation and assumptionsMicrosoft's software franchise is compounding and Azure is accelerating, but growth is now bought with capital: spending including leases was about 44% of revenue in fiscal 2026. The price assumes that spending earns returns close to historical ones.
AI capacity is being built ahead of proven long-run pricing, with OpenAI a large share of the backlog. Slower demand or falling compute prices would leave depreciation on underused assets.
Revenue a company has contracted but not yet recognised, including multi-year commitments customers have signed but not yet used or been billed for.
In this report: Microsoft's commercial backlog reached $678 billion, up 84%, but only 25% excluding OpenAI, so most of the headline growth depends on one customer.
Two businesses share one customer base. Productivity software ($140.0 billion revenue, 59.9% operating margin in fiscal 2026) needs little capital. Intelligent Cloud ($137.8 billion, 41.3% margin) is capital-heavy and growing about 30%. More Personal Computing ($54.1 billion) is flat.
The sensitivity of operating profit to changes in revenue when some operating costs are fixed.
In this report: Operating expenses grew 7.4% against 17.8% revenue growth in FY2026, lifting margin even as AI costs cut gross margin.
Holding base-case margins and spending, $501.61 requires about 12.9% annual revenue growth for ten years, versus 10.0% in the base case, or accepting about a 7.9% return instead of 9%. This is conditional on the model's other assumptions.
A valuation model that works backward from a share price to find combinations of growth, margins, and other assumptions consistent with that price.
In this report: It shows the $501.61 price needs about 12.9% annual revenue growth for ten years at base margins, versus 10% in the base case.
The weighted average required return of a company's debt and equity providers, used to discount cash flows to the firm.
In this report: With Treasury yields near 5%, the choice between an 8% and 9% cost of capital moves Microsoft's base value by about $87 per share, more than any single business assumption.
Hold. The business is excellent and strengthening, but probability-weighted value of about $401 is roughly 20% below the price, and base-case expected returns of 7 to 9% a year fall short of a 9% hurdle. Much of the gap is the discount rate, with long Treasury yields near 5%.
The weighted average required return of a company's debt and equity providers, used to discount cash flows to the firm.
In this report: With Treasury yields near 5%, the choice between an 8% and 9% cost of capital moves Microsoft's base value by about $87 per share, more than any single business assumption.
Duration of Azure-led growth: each 1.5 points of annual revenue growth over ten years moves value by about $47 per share, because it compounds into the terminal value.
Operating margin after AI depreciation: depreciation could rise from 11.6% to about 17 to 19% of revenue; each 2 points of margin is worth about $20 per share.
The sensitivity of operating profit to changes in revenue when some operating costs are fixed.
In this report: Operating expenses grew 7.4% against 17.8% revenue growth in FY2026, lifting margin even as AI costs cut gross margin.
Capital intensity: spending including finance leases was about 44% of revenue; each 3 points sustained changes value by about $16 per share.
A lease accounted for like a purchase financed with debt: the asset and a liability go on the balance sheet, but the addition does not appear as cash capital expenditure.
In this report: About $29 billion of Microsoft's FY2026 capacity was added through finance leases, so cash capex understates total investment and reported free cash flow overstates what shareholders could take out.
OpenAI's funding tightens and compute prices fall as supply catches up by 2028; Azure growth drops toward 15%, margins fall to 37% as depreciation lands on underused capacity, and the OpenAI stake is marked down.
Capacity doubles by mid-2028 and fills; Azure slows from the high 30s to the teens by FY2031; Microsoft 365 grows mid-teens; margins ease to 43.5% as depreciation rises while spending falls back toward 21% of revenue.
AI agents drive a lasting step-up in spending, Microsoft captures the application layer, custom chips cut serving costs, margins return to 47%, and OpenAI lists above $1 trillion.
An ownership stake large enough to give significant influence, carried at cost adjusted for the investor's share of the investee's results rather than at market value.
In this report: Microsoft carries its roughly 25% OpenAI stake near $12 billion while funding rounds imply well over $100 billion, and dilution gains inflated FY2026 net income.
Microsoft Cloud gross margin: stabilising at 65 to 67% supports the base case; below 60% for two quarters would signal AI capacity earning too little.
Azure growth versus spending: growth above 35% while spending grows more slowly would strengthen the view; growth below 25% with rising spending would weaken it.
Backlog growth excluding OpenAI (25% at June 2026): sustained growth above 20% confirms broad demand; below 10% would expose dependence on one customer.
Revenue a company has contracted but not yet recognised, including multi-year commitments customers have signed but not yet used or been billed for.
In this report: Microsoft's commercial backlog reached $678 billion, up 84%, but only 25% excluding OpenAI, so most of the headline growth depends on one customer.
Microsoft does not disclose Azure dollar revenue or margin, the split of the $24.1 billion OpenAI revenue between compute and revenue share, or the growth versus maintenance split of capital spending. Notes to the FY2026 10-K were read mainly through a secondary filing analysis because the full filing did not load. Current peer valuation multiples, the outcome of Musk v. OpenAI, the terms of OpenAI's reported IPO filing and the reported cap on OpenAI revenue-share payments were not verified in primary sources. The OpenAI stake value and WACC are estimates. FY2021 gross margin, FY2021 SBC, pre-FY2024 Azure growth rates and acquisition prices are from memory and unverified.
These model scenarios depend on their inputs. Review the assumptions and supporting evidence alongside the implied values.
earnings multiple v2 · as of 2026-10-25
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