After Earnings, Is Microsoft Stock a Buy, a Sell, or Fairly Valued?

Microsoft released its fiscal fourth-quarter earnings report on July 30. Here’s Morningstar’s take on Microsoft’s earnings and stock.

Key Morningstar Metrics for Microsoft

• Fair Value Estimate: $600.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Microsoft’s Q4 Earnings

Microsoft’s fourth-quarter results topped the high end of guidance. Revenue increased 18% year over year to $76.4 billion, compared with the high end of guidance of $74.3 billion, while operating margin was 44.9%, compared with the high end of guidance at 43.8%.

Why it matters: Results are strong from any angle, with meaningful upside to our estimates on both the top and bottom lines. Revenue for all segments checked in above the high end of guidance. Critically, we see very impressive performance within Azure, in both traditional and AI workloads.

• In our view, near-term demand indicators are robust. Commercial bookings grew a stout 30% year over year in constant currency based on surging Azure commitments from OpenAI and other large deals. Remaining performance obligations increased 37% year over year to $368 billion.
• Demand for Azure AI services is surging, which is clearly a long-term positive. While Azure remains capacity-constrained, both traditional and AI workloads were strong. Azure growth was 39% in constant currency for the quarter and easily topped guidance of 34%-35%.

The bottom line: We raise our fair value estimate for wide-moat Microsoft to $600 per share, from $505 previously, on strong results and a bullish outlook, moving our near-term growth estimates higher and profitability slightly higher throughout our forecast. The stock remains one of our top picks.

Coming up: First-quarter guidance is better than both our and FactSet consensus estimates, including $75.25 billion in revenue, 46.6% operating margin, and $3.65 in EPS at the midpoints. For fiscal 2026, the firm expects double-digit revenue growth and relatively flat operating margins versus 2025.

Big picture: We see results reinforcing our long-term thesis, which centers on the expansion of hybrid cloud environments, the proliferation of artificial intelligence, and Azure. We center our growth estimates around Azure, Microsoft 365 E5 migration, and traction with the Power Platform.

Fair Value Estimate for Microsoft

With its 4-star rating, we believe Microsoft’s stock is undervalued compared with our long-term fair value estimate of $600 per share, which implies a fiscal 2026 enterprise value/sales multiple of 14 times and an adjusted price/earnings multiple of 39 times.

We model a five-year compound annual growth rate for revenue of approximately 13%, inclusive of the Activision acquisition. We envision stronger revenue growth ahead as Microsoft’s prior decade was bogged down by the downturn in 2008, the complete evaporation of mobile handset revenue from the disposal of the Nokia handset business, as well as the onset of the model transition to subscriptions (which initially results in slower revenue growth).

However, we believe macro and currency factors will pressure revenue in the near term. We believe revenue growth will be driven by Azure, Office 365, Dynamics 365, LinkedIn, and emerging AI adoption. Azure, in particular, is the single most critical revenue driver over the next 10 years, in our view, as hybrid environments (where Microsoft excels) drive mass cloud adoption. We believe the combination of Azure, DBMS, Dynamics 365, and Office 365 will drive above-market growth as CIOs continue to consolidate vendors. We believe More Personal Computing will grow modestly above GDP over the next 10 years.

Read more about Microsoft’s fair value estimate.

Economic Moat Rating

We assign Microsoft overall a wide moat, arising primarily from switching costs, with network effects and cost advantages as secondary sources. Based on the company’s segments, we believe the productivity and business processes and intelligent cloud segments have earned wide moats, while the more personal computing unit warrants a narrow moat. We believe Microsoft’s moat will probably allow the company to earn returns in excess of its cost of capital over the next 20 years.

We believe customers value Microsoft’s products as stand-alone solutions and for the company’s immense product breadth, and these applications are tightly integrated. In our opinion, the strength of these products is crucial, but it should not overshadow the importance of all the solutions Microsoft offers under one umbrella, as customers are usually looking to consolidate vendors. These factors combine to reinforce our wide moat.

Read more about Microsoft’s economic moat.

Financial Strength

We believe Microsoft enjoys excellent financial strength arising from its strong balance sheet, growing revenue, and high and expanding margins. As of June 2025, Microsoft had $95 billion in cash and equivalents, offset by $43 billion in debt, resulting in a net cash position of $51 billion. Gross leverage is at 0.3 times fiscal 2025 EBITDA. Our base case assumes that revenue grows at a healthy pace, driven by Azure public cloud adoption, Office 365 upselling efforts, AI adoption, and broader digital transformation initiatives. We see strong margins over the next several years. Free cash flow margin has averaged near 30% over the last three years, which we expect to generally improve.

Read more about Microsoft’s financial strength.

Risks and Uncertainty

We assign Microsoft an Uncertainty Rating of Medium. The firm faces risks that vary among the products and segments. High market share in the client-server architecture over the last 30 years means that significant high-margin revenue is at risk, particularly in OS, Office, and Server. Microsoft has thus far been successful in growing revenues in a constantly evolving technology landscape, and is enjoying success in both moving existing workloads to the cloud for current customers and attracting new clients directly to Azure. However, it must continue to drive revenue growth of cloud-based products faster than revenue declines in on-premises products.

Read more about Microsoft’s risk and uncertainty.

MSFT Bulls Say

• Public cloud is widely considered the future of enterprise computing, and Azure is a leading service that benefits the evolution first to hybrid environments and ultimately to public cloud environments.
• Microsoft 365 continues to benefit from upselling into higher-priced stock-keeping units, as customers are willing to pay for better security and Teams Phone, which should continue over the next several years.
• Microsoft has monopoly-like positions in various areas (OS, Office) that serve as cash cows to drive Azure growth.

MSFT Bears Say

• Momentum is slowing in the ongoing shift to subscriptions, particularly in Office, which is generally considered a mature product.
• Microsoft lacks a meaningful mobile presence.
• Microsoft is not the top player in its key sources of growth, notably Azure and Dynamics.

This article was compiled by James Ubi.