Optional product analytics
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Upside persists if FY2028 revenue reaches about USD 467.33 billion, diluted earnings reach USD 23.57 per share, and free cash flow improves.
Annual free cash flow remains below USD 67 billion for two consecutive years.
Our fair-value estimate for MSFT is $457.39 per share, with Potential value of $570.41 per share.
MSFT is rated Reduce at the report-date price of $513.53 versus our fair value of $457.39, implying -10.93% potential return.3
Our fair value combines these valuation methods: Multi Stage Moat Fade 30% at $459.09; Discounted Earnings 25% at $448.13; Owner Earnings 12% at $528.12; Forward Earnings 13% at $473.05; Peg Adjusted Peer 0% at $485.02; FCFF DCF 20% at $414.81.
Structural mechanism: Microsoft's enterprise offering is integrated into communication, governance, security, IT, finance, and operating workflows. Replacement can therefore require coordinated migration, control redesign, retraining, and administrative reconfiguration across multiple functions.. Current durability indicator: indicator rather than structural proof: FY2026 operating income remained substantial relative to revenue, and the available history shows sustained profitability.46
Avoid new capital at USD 513.53; Fair value of USD 457.39 is 10.93% below that price.3
Upside scenario assumption: the favorable cycle requires cloud and AI capacity to be absorbed quickly. FY2028 revenue of USD 467.33 billion and diluted earnings of USD 23.57 per share are the dated persistence tests; both references were retrieved 2026-08-30.
MSFT is rated Reduce at the report-date price of $513.53 versus our fair value of $457.39, implying -10.93% potential return.3
FY2026 free cash flow was USD 66.99 billion despite USD 182.94 billion of operating cash flow. Capital spending of USD 115.95 billion is the central pressure point.
Structural mechanism: Microsoft's enterprise offering is integrated into communication, governance, security, IT, finance, and operating workflows. Replacement can therefore require coordinated migration, control redesign, retraining, and administrative reconfiguration across multiple functions.. Current durability indicator: indicator rather than structural proof: FY2026 operating income remained substantial relative to revenue, and the available history shows sustained profitability.
Economic profit is supported when reported returns exceed the company cost-of-capital hurdle.
Unavailable
The highlighted base cell exactly reruns each positively weighted calculated model at its published base assumptions and sums the weighted contributions ($457.39).
The cash-flow model remains positive in the first forecast year. The result is most sensitive to investment needs, margins, discount rates, and the value after the forecast period.
A beat matters only if it raises normalized outer-year cash generation, not just near-term multiple enthusiasm. Keep position sizing tied to valuation after the guidance reset.
An industry reference places capital spending above depreciation and records it as a material share of revenue. Its as-of and retrieval dates are not stated, so it is directional evidence. Capacity investment can support growth, but excess capacity would raise depreciation and operating costs before enough revenue arrives.
Upside scenario assumption: the favorable cycle requires cloud and AI capacity to be absorbed quickly. FY2028 revenue of USD 467.33 billion and diluted earnings of USD 23.57 per share are the dated persistence tests; both references were retrieved 2026-08-30.
The adverse cycle begins if annual revenue growth falls below 10% before new capacity is absorbed. Lower use would pressure margins and free cash flow while investors pay less for each earnings dollar.
Reduced exposure only; no new capital while the rating remains Reduce. Reduce exposure in stages; do not add while the rating remains Reduce.
Reassess or exit if the core thesis breaks.
The final Reduce view is anchored to the reconciled $457.39 fair-value midpoint and -10.9% upside/downside, with the debate centered on whether the moat and growth runway continue to justify the accepted model weights.
Avoid full exposure; reduce while annual free cash flow remains near the USD 67 billion risk threshold.
Cash backing and balance-sheet indicators do not offset the valuation gap or weak cash left after investment.
MSFT is rated Reduce at the report-date price of $513.53 versus our fair value of $457.39, implying -10.93% potential return.3
At $513.53, the stock is measured against the final $457.39 midpoint and -10.93% upside/downside, so new capital should respect the 25% report margin-of-safety discipline.
Capture your own thesis, position size, and follow-up questions. Stays on this device, only you can see it.
The records this analysis drew on, as they stood when it was run.
The bear case moves toward the lower forecast range described in this dedicated section.
Free cash flow stays below USD 67 billion for two years.
Annual revenue growth falls below 10%.
Forward net margin falls below 32.5%.
The forward earnings multiple falls below 17 times.
The five developments that would weaken our investment case.
Continued weak free cash flow would show infrastructure spending consuming cash faster than new capacity generates it, lowering distributable cash.
Current:FY2026: USD 66.99 billion; period ended 2026-06-30, retrieved 2026-08-30.
Alert ifBelow USD 67 billion for two consecutive years.
A deeper revenue slowdown would show demand is not absorbing new capacity, reducing sales leverage and weakening future earnings expectations.
Current:First-year base path: 17.85%; valuation dated 2026-08-30.
Alert ifBelow 10% within 12 months.
Lower earnings expectations would mean revenue is turning into less profit, reducing the earnings base investors capitalize into value per share.
Current:USD 23.57 per share; forward estimate reference as of and retrieved 2026-08-30.
Alert ifBelow USD 20.93 per share for FY2028.
Costs would absorb too much revenue, so expected earnings growth would weaken even if sales remain strong over time.
Current:Expected endpoint: 37.5%; valuation dated 2026-08-30.
Alert ifBelow 32.5% within 24 months.
A lower forward multiple means investors pay less for each dollar of future earnings, directly reducing value per share quickly.
Current:25.51 times; market data as of and retrieved 2026-08-30.
Alert ifBelow 17 times within 6 months.
Each lens answers a different valuation question. Only included lenses set Fair value; floors and diagnostics provide context.
Project SBC-adjusted EPS, discount each year's earnings at cost of equity, then add a Gordon-growth terminal value.
This edition does not contain enough finite inputs to reproduce the lens calculation.
Project EPS through the explicit advantage period, fade growth as competition catches up, and discount the full stream at cost of equity.
This edition does not contain enough finite inputs to reproduce the lens calculation.
Apply a terminal P/E to the dated forward EPS path, then discount that future share value back to the analysis date.
This edition does not contain enough finite inputs to reproduce the lens calculation.
Convert the revenue and margin path into after-tax free cash flow, discount the annual per-share amounts and terminal value at , then adjust for signed per current share.
Add depreciation to net income, subtract maintenance capex, divide by diluted shares, and apply a normalized valuation multiple.
The bull case moves toward the upper forecast range and tests the report's Potential value.
Base case ties to the fair-value midpoint and assumes the base assumptions continue to hold.
An in-line print confirms the base case but does not by itself justify raising exposure. The right move is to keep the thesis on watch and demand either better margin of safety or clearer acceleration.
A miss is thesis-relevant when it weakens the moat, margin, or cash-flow assumptions behind the fair-value range. Treat that as a model-reset event rather than a routine volatility event.
Monitor earnings quality, guidance, and valuation-sensitive operating metrics.
Shows whether infrastructure is producing cash.
Tests profit conversion.1
Shows whether deployment costs absorb revenue.
Shows what investors pay per future earnings dollar.
| $198.27B |
| $211.92B |
| $245.12B |
| $281.72B |
| $331.84B |
| +13.7% |
| Gross profit | $135.62B | $146.05B | $171.01B | $193.89B | $225.47B | +13.6% |
| Operating income | $83.38B | $88.52B | $109.43B | $128.53B | $155.24B | +16.8% |
| Net income | $72.74B | $72.36B | $88.14B | $101.83B | $133.75B | +16.4% |
| EPS (diluted) | $9.65 | $9.68 | $11.80 | $13.64 | $17.95 | +16.8% |
| EBITDA | $100.24B | $105.14B | $133.01B | $160.17B | $207.52B | +20.0% |
| R&D | $24.51B | $27.20B | $29.51B | $32.49B | $35.56B | +9.7% |
| SG&A | $5.90B | $7.58B | $7.61B | $7.22B | $7.96B | +7.8% |
Capital allocation should be evaluated against reinvestment needs, balance-sheet strength, and shareholder returns.
| Revenue | $331,839,000,000 |
|---|---|
| Cost of revenue | $106,374,000,000 |
| Gross profit | $225,465,000,000 |
| Operating expenses | $70,228,000,000 |
| Operating income | $155,237,000,000 |
| Non-operating items and tax | -$21,488,000,000 |
| Net income | $133,749,000,000 |
| Total assets | $758,376,000,000 |
|---|---|
| Cash | $20,935,000,000 |
| Current assets | $207,710,000,000 |
| Total liabilities | $315,989,000,000 |
| Current liabilities | $168,825,000,000 |
| Shareholders’ equity | $442,387,000,000 |
| Net income | $133,749,000,000 |
|---|---|
| Operating inflow | $184,688,000,000 |
| Depreciation and amortization | $38,534,000,000 |
| Stock-based compensation | $12,405,000,000 |
| Operating cash flow | $182,935,000,000 |
| Operating outflow | $1,753,000,000 |
| Cash available | $213,177,000,000 |
| Beginning cash | $30,242,000,000 |
| Investing outflow | $139,500,000,000 |
| Capex | $115,948,000,000 |
| Other investing activities | $23,552,000,000 |
| Financing outflow | $52,546,000,000 |
| Share repurchases | $22,271,000,000 |
| Dividends paid | $26,445,000,000 |
| Net debt repayment | $3,000,000,000 |
| Other financing activities | $830,000,000 |
| Exchange-rate effect | $196,000,000 |
| Ending cash | $20,935,000,000 |
| Investing cash flow | -$139,500,000,000 |
| Financing cash flow | -$52,546,000,000 |
Source: SEC EDGAR · Filed 2026-07-29 · SEC EDGAR
| Revenue by operating segment | Revenue | Share | YoY |
|---|---|---|---|
| Productivity And Business Processes | $140B | 42.2% | 15.9% |
| Intelligent Cloud | $137.8B | 41.5% | 29.7% |
| More Personal Computing | $54.1B | 16.3% | -1.1% |
Point-in-time financial data used in the 2026-08-30 analysis.
| Period | Revenue | EBITDA | Net income | Operating cash flow | Free cash flow | Capex | Depreciation and amortization | Stock-based compensation | Share repurchases | Dividends paid | Net debt issuance | Investing cash flow | Financing cash flow | Beginning cash | Ending cash | Cash and investments | Total debt | Operating margin | ROIC | WACC | ROIC − WACC spread |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2017-06-30 | $96.6B | $40.9B | $25.5B | $39.5B | $31.4B | $8.1B | $8.8B | $3.3B | $11.8B | $11.8B | — | -$46.8B | $8.4B | — | $7.7B | $133B | $77.1B | 30.1% | — | 5.7% | — |
| 2018-06-30 | $110.4B | $49.5B | $16.6B | $43.9B | $32.3B | $11.6B | $10.3B | $3.9B | $10.7B | $12.7B | — | -$6.1B | -$33.6B | $7.7B | $11.9B | $133.8B | $76.2B | 31.8% | — | 6.2% | — |
| 2019-06-30 | $125.8B | $58.1B | $39.2B | $52.2B | $38.3B | $13.9B | $11.7B | $4.7B | $19.5B | $13.8B | — | -$15.8B | -$36.9B | $11.9B | $11.4B | $133.8B | $72.2B | 34.1% | — | 6.4% | — |
| 2020-06-30 | $143B | $68.4B | $44.3B | $60.7B | $45.2B | $15.4B | $12.8B | $5.3B | $23B | $15.1B | — | -$12.2B | -$46B | $11.4B | $13.6B | $136.5B | $63.3B | 37.0% | — | 4.4% | — |
| 2021-06-30 | $168.1B | $85.1B | $61.3B | $76.7B | $56.1B | $20.6B | $11.7B | $6.1B | $27.4B | $16.5B | — | -$27.6B | -$48.5B | $13.6B | $14.2B | $130.3B | $58.1B | 41.6% | — | 5.0% | — |
| 2022-06-30 | $198.3B | $100.2B | $72.7B | $89B | $65.1B | $23.9B | $14.5B | $7.5B | $32.7B | $18.1B | -$9B | -$30.3B | -$58.9B | $14.2B | $13.9B | $104.8B | $49.8B | 42.1% | — | 6.9% | — |
| 2023-06-30 | $211.9B | $105.1B | $72.4B | $87.6B | $59.5B | $28.1B | $13.9B | $9.6B | $22.2B | $19.8B | -$2.8B | -$22.7B | -$43.9B | $13.9B | $34.7B | $111.3B | $47.2B | 41.8% | — | 8.0% | — |
| 2024-06-30 | $245.1B | $133B | $88.1B | $118.5B | $74.1B | $44.5B | $22.3B | $10.7B | $17.3B | $21.8B | $575M | -$97B | -$37.8B | $34.7B | $18.3B | $75.5B | $44.9B | 44.6% | — | 8.5% | — |
| 2025-06-30 | $281.7B | $160.2B | $101.8B | $136.2B | $71.6B | $64.6B | $34.2B | $12B | $18.4B | $24.1B | -$9B | -$72.6B | -$51.7B | $18.3B | $30.2B | $94.6B | $43.2B | 45.6% | — | 9.3% | — |
| 2026-06-30 | $331.8B | $207.5B | $133.7B | $182.9B | $67B | $115.9B | $38.5B | $12.4B | $22.3B | $26.4B | -$3B | -$139.5B | -$52.5B | $30.2B | $20.9B | $76.8B | $40.3B | 46.8% | — | 9.6% | — |
MSFT trades at 25.5x forward earnings against a peer median of 29.4x; EV/EBITDA of 19.9x against a peer median of 27.9x; 4 peers as of 2026-08-30.
| Trend | Impact | Note |
|---|
| Cloud and AI demand | positive | Strong demand can support growth if deployed capacity is absorbed and earnings expectations hold. |
| Rising infrastructure intensity | negative | Heavy spending can suppress free cash flow until new capacity produces sufficient revenue. |
| Integrated enterprise workflows | positive | Product integration can support retention and pricing across business workloads. |
Microsoft has strong operating cash generation, but its position now depends on converting infrastructure investment into higher free cash flow.56
| Level | Action |
|---|---|
| Thesis break | Reassess or exit if the core thesis breaks. |
Not every cited input appears here: internal calculations and intermediate model outputs have no external record, and some citations could not be matched to one.
This edition does not contain enough finite inputs to reproduce the lens calculation.
This edition does not contain enough finite inputs to reproduce the lens calculation.
| Apple Inc. |
| 33.5x |
| 10.0x |
| 27.9x |
| 148.8% |
| 32.6% |
| PANW | Palo Alto Networks Inc. | 90.4x | 28.6x | 4.8% | -2.5% |
| SNPS | Synopsys Inc. | 25.3x | 9.0x | 44.4x | 3.7% | 14.5% |
