The Microsoft story

What drives the business

• Microsoft's business combines productivity software, cloud infrastructure and personal computing, with growth increasingly tied to moving customers from licensed software to subscriptions and adding AI across those products.
• Productivity and Business Processes generated $37.8 billion in the quarter to June 2026, up 14%, with Microsoft 365 growth driven by more users and higher revenue per user, while Microsoft 365 Copilot reached over 30 million paid seats.
• Azure revenue depends primarily on customers' consumption of computing infrastructure and platform services, and Azure and other cloud services revenue grew 43% in the quarter to June 2026 as Intelligent Cloud revenue reached $39.3 billion.
• Azure surpassed $100 billion in revenue in the fiscal year ended June 2026, while Microsoft's $678 billion of commercial remaining performance obligation represents contracted revenue still to be recognized.
• More Personal Computing generated $12.9 billion in the quarter to June 2026, down 4%, with Windows OEM and Devices revenue down 7% and XBOX content and services revenue down 10%.

What the price assumes

At $509.22 per share, the reverse DCF implies that free cash flow after stock pay grows 24.8% a year for ten years, using a 10.2% discount rate.

Microsoft delivered 10.1% annual growth on that measure over the last 10 years, while the TenQ check sets a 7.0% bar by slowing the historical record halfway toward 4%.

Over the last twelve months, revenue grew 17.8% and free cash flow totaled $67.0 billion before $12.4 billion of stock-based pay, while the free cash flow yield was 1.8% and Microsoft passed 0 of 6 Value checks.

Value MSFT on your own assumptions

What could change the story

• AI and cloud infrastructure spending precedes fully developed revenue streams, and expanding proprietary hardware and AI models could add costs and pressure the 46.8% operating margin if revenue arrives later or at lower levels than expected.
• AI creates additional cybersecurity attack surfaces, while supply chain incidents can affect Microsoft's products even without a direct compromise of its own systems.
• Results in the quarter to June 2026 benefited from a $3.2 billion Anthropic investment gain and lower than expected Voluntary Retirement Program expenses, partially offset by severance expense and XBOX impairment charges, complicating comparisons of underlying earnings growth.
• Gaming weakness also bears on acquisition value, with More Personal Computing carrying $62.3 billion, or 52%, of Microsoft's $119.7 billion of goodwill.
• Microsoft's near-term liquidity ratio of 1.23 missed TenQ's 1.50 threshold, although $76.8 billion of cash and short-term investments exceeded $40.3 billion of total debt.

What to watch next

• The July 2026 earnings release deferred forward guidance to the earnings call rather than stating numerical ranges, leaving subsequent outlook disclosures important for assessing spending and growth expectations.
• The next releases can show whether Azure consumption, Microsoft 365 Copilot paid seats and recognition of commercial remaining performance obligation support cash generation as infrastructure spending continues.
• Microsoft announced in September 2026 that fiscal 2027 reporting would shift to Agents and Infra and Devices and Consumer, with quarterly revenue disclosure for key businesses including Azure and M365 Cloud, making the restated comparisons important for tracking the transition.

Sources

• Microsoft's earnings release, filed with the SEC
• Its latest 10-Q or 10-K, for the risk factors
• The MSFT stock report, for every figure and check