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	423.37
Change Percentage	-1.61%
Open	430.24
Previous Close	430.29
Market Cap ( Millions)	3143789
Volume	41784456
Year High	555.45
Year Low	344.79
M A 50	476.12
M A 200	485.94

FCF Yield	2.46%
Dividend Yield	0.80%
ROE	33.61%
Debt / Equity	14.74%
Net Debt / EBIDTA	17.41%
Price To Book	8.05
Price Earnings Ratio	26.38
Price To FCF	40.61
Price To sales	10.29
EV / EBITDA	16.6

2. Microsoft's Q2 Earnings: A Strong Performance Driven by Cloud and AI Growth

Microsoft reported a strong Q2 earnings, with revenue reaching $81.3 billion, up 17% in constant currency. Gross margin dollars increased 16% in constant currency, while operating income increased 21% in constant currency. Earnings per share was $4.14, an increase of 24% in constant currency when adjusted for the impact from the investment in OpenAI, beating analyst estimates of $3.91. The company's gross margin percentage was 68%, down slightly year over year, primarily driven by continued investments in AI infrastructure and growing AI product usage.

Publication Date: Feb -02

                                    📋 Highlights
                                    Microsoft Cloud Revenue Surpasses $50 Billion:
                                                for the first time, up 26% YoY to $51.5 billion, with a 67% gross margin.
Maya 200 Accelerator Launched:
                                                with 10+ flops at FP4 precision, offering over 30% improved total cost of ownership (TCO) compared to prior hardware.
Revenue Grew 17% to $81.3 Billion:
                                                , driven by Azure’s 39% growth ($32.9 billion in Intelligent Cloud revenue) and 16% growth in Productivity & Business Processes ($34.1 billion).
Commercial RPO Reaches $625 Billion:
                                                , up 28% YoY, with 55% tied to long-term contracts and a weighted average duration of 2.5 years.
Operating Margins Rise to 47%:
                                                , exceeding expectations, amid 5% operating expense growth driven by R&D in AI and compute infrastructure.

                                

Segment Performance

The company's cloud business continued to drive growth, with Microsoft Cloud revenue reaching $51.5 billion, growing 26% in constant currency. Azure revenue grew 39% in constant currency, with ongoing efficiency gains across the fungible fleet. In productivity and business processes, revenue was $34.1 billion, growing 16% in constant currency, driven by strong Microsoft 365 commercial cloud revenue growth. Intelligent cloud revenue was $32.9 billion, growing 29% in constant currency.

Valuation and Growth Prospects

With a P/E Ratio of 26.81 and an EV/EBITDA of 16.87, Microsoft's valuation suggests that investors are pricing in a certain level of growth. Analysts estimate next year's revenue growth at 15.3%, which is slightly lower than the current year's growth rate. The company's ROIC of 21.48% and ROE of 33.61% indicate strong profitability. As Microsoft continues to invest in AI infrastructure and expand its cloud capabilities, its growth prospects remain promising.

AI and Cloud Investments

Microsoft is investing heavily in AI and cloud infrastructure, with a focus on building out its infrastructure to support new high-scale workloads. The company has announced the Maya 200 accelerator, delivering 10+ flops at FP4 precision with over 30% improved TCO compared to the latest generation hardware in its fleet. As Satya Nadella stated, "We're allocating capacity to build the best LTV portfolio, considering both short-term and long-term investments."

Outlook and Guidance

For Q3, Microsoft expects revenue to be $80.65 to $81.75 billion, or growth of 15 to 17%. The company is guiding for COGS to be $26.65 to $26.85 billion, and operating expense to be $17.8 to $17.9 billion. As the company continues to invest in AI and cloud infrastructure, its growth prospects remain strong, driven by its expanding cloud and AI capabilities.

3. NewsRoom

What Wall Street Thinks Microsoft Will Be Worth 1 Year From Now. Here's Why It Matters.

01:30

Source: fool.com

Microsoft: It Becomes The Cheapest Stock In The Magnificent 7 (Rating Upgrade)

Feb -02

Source: seekingalpha.com

I Predicted Microsoft Would Hit an All-Time High in 2025, but the Stock Is Down 22% From That Record. Can Microsoft Recover in 2026?

Feb -02

Source: fool.com

Yacktman Fund's Strategic Moves: A Closer Look at Samsung Electronics Co Ltd

Feb -02

Source: gurufocus.com

Yacktman Focused Fund Reduces Stake in Samsung Electronics Co Ltd by 3.2%

Feb -02

Source: gurufocus.com

Options Traders Circle Chip Stock Before Earnings

Feb -02

Source: schaeffersresearch.com

2 Unstoppable "Magnificent Seven" Growth Stocks to Buy Even if There's a Stock Market Sell-Off in 2026

Feb -02

Source: fool.com

Here Are the 10 Most-Owned Stocks on Robinhood. These 2 Are the Best of the Bunch.

Feb -02

Source: fool.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: 6.1/10

Value: 0.8

Growth: 7.9

Quality: 8.5

Yield: 2.0

Momentum: 8.0

Volatility: 9.3

1-Year Total Return ->

CrowdStrike

A-Score: 5.1/10

Value: 4.0

Growth: 8.8

Quality: 3.7

Yield: 0.0

Momentum: 9.0

Volatility: 5.0

1-Year Total Return ->

Oracle

A-Score: 4.8/10

Value: 2.7

Growth: 6.8

Quality: 6.0

Yield: 2.0

Momentum: 8.5

Volatility: 3.0

1-Year Total Return ->

Fortinet

A-Score: 4.5/10

Value: 1.0

Growth: 9.1

Quality: 7.9

Yield: 0.0

Momentum: 4.0

Volatility: 5.0

1-Year Total Return ->

Adobe

A-Score: 4.5/10

Value: 3.0

Growth: 5.4

Quality: 9.2

Yield: 0.0

Momentum: 2.0

Volatility: 7.3

1-Year Total Return ->

Synopsys

A-Score: 2.2/10

Value: 0.9

Growth: 0.8

Quality: 6.4

Yield: 0.0

Momentum: 2.0

Volatility: 3.3

1-Year Total Return ->

Peers Metrics

12.e Scoring ^Insights

12.f DCF ^BETA

Parameters

Short Term Growth

12.70%

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 Q2 Earnings: A Strong Performance Driven by Cloud and AI Growth

Segment Performance

Valuation and Growth Prospects

AI and Cloud Investments

Outlook and Guidance

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

423.37$

Current Price

423.37$

Potential

-0.00%

Expected Cash-Flows

12.e Scoring ^Insights

12.f DCF ^BETA