Microsoft MSFT
What does Microsoft do?
Microsoft develops and sells software, cloud services and devices for consumers, businesses and public institutions worldwide. Its offering ranges from operating systems and server applications through developer tools to games and hardware such as PCs, tablets and consoles. The business is divided at its core into three areas: Productivity and Business Processes with Microsoft 365, Teams, Exchange, Power BI and Copilot; the cloud division with Azure and server products; and a segment for personal computing with Windows, devices, Xbox and search advertising.
A large share of revenue comes from recurring subscriptions and licensing agreements with enterprise customers, which strengthens customer retention. In competition, Microsoft is among the largest providers of cloud infrastructure alongside Amazon Web Services and Google Cloud. In office and collaboration software, the company holds a dominant position. The close integration of applications, cloud, security solutions and artificial intelligence allows it to bundle products and expand existing customer relationships.
Score profile
Rank vs. Software - Infrastructure (50 companies). 10 = top of the group, 5 = middle. Calculated from the metrics below, without AI.
Metrics compared with the industry
On profitability and quality, Microsoft ranks above average in the group Software - Infrastructure (7.7/10). On growth, the company ranks in the middle in the group Software - Infrastructure (5.6/10). On valuation (higher = cheaper), the stock ranks below average in the group Software - Infrastructure (3.6/10). On financial strength, Microsoft ranks below average in the group Software - Infrastructure (2.9/10).
| Metric | Stock | Group median | Ranking |
|---|---|---|---|
| Forward P/E | 22.0x | 16.0x | better than 37 % |
| Trailing P/E | 27.8x | 31.5x | better than 54 % |
| PEG ratio | 1.6x | 1.4x | better than 44 % |
| EV/EBITDA | 20.0x | 20.0x | better than 50 % |
| Price/sales | 11.4x | 3.8x | better than 13 % |
| Price/book | 8.4x | 5.8x | better than 36 % |
| Revenue growth | 18.8% | 14.3% | better than 59 % |
| Earnings growth | 32.3% | 24.4% | better than 53 % |
| Gross margin | 67.7% | 72.3% | better than 41 % |
| Operating margin | 49.8% | 13.3% | better than 97 % |
| Net margin | 41.2% | 10.5% | better than 93 % |
| Return on equity | 34.2% | 12.4% | better than 79 % |
| Debt/equity | 28.5% | 17.5% | better than 45 % |
| Current ratio | 1.2x | 1.5x | better than 34 % |
| Free cash flow yield | 0.1% | 3.7% | better than 7 % |
| Dividend yield | 0.7% | 1.1% | – |
| Payout ratio | 19.0% | 31.4% | – |
| Beta | 1.04 | 1.04 | – |
Valuation: what is Microsoft worth?
Two valuation approaches – a discounted cash flow model and a valuation at the industry’s median multiples – give Microsoft a model range of 386.99 USD to 533.24 USD per share.
54 analysts, average rating “Strong buy”, average price target 636.12 USD (+19.3%).
The full DCF matrix, the reverse DCF (what growth the price implies) and scenarios are part of the Pro analysis.
What the business depends on
- Demand for cloud infrastructure and platform services such as Azure largely determines the company's growth.
- Recurring subscriptions for Microsoft 365 and related services secure predictable revenue and high customer retention.
- The integration of AI features into existing products may increase pricing levels and usage per customer.
Risks
- Expanding data centers and AI infrastructure requires high investment, which may weigh on margins and return on capital.
- Antitrust and regulatory proceedings as well as data protection requirements may restrict bundling strategies and business practices.
- Strong competition in cloud and AI as well as dependence on partners such as OpenAI create strategic uncertainty.
What to look for with Microsoft
Revenue growth and the operating margin of the cloud segment are particularly informative, because they show whether high infrastructure investments are being converted into revenue profitably.