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How do I use this slideshow?
1. The slideshow contains the most important forecasts for a company's divisions, or product lines.
2. Disagree with a forecast? Simply drag the trend-line to test your own what-if scenario, and see possible upside or downside risks for a stock.
3. Plot data for competitors and benchmarks using the "Competition" button.
4. In the slide caption, and the area below the slideshow, see the key trends impacting a given forecast, as well as historical explanations.
5. The first slide shows which one of a company's divisions, or product lines, contribute most to its stock price. Clicking on a division arm of the diagram, you can explore the most important forecasts for the division. -
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. The data and sources are available on the Trefis website.
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Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast, and their rationale is explained on the Trefis website.
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How does my dragging the trendline on the chart impact the stock price?
1. We use forecasts for various business drivers to calculate forecasted Revenues and Profits for .
2. We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for . -
How does Trefis come up with the Price estimate for a company?
The Trefis forecasts are used to calculate future revenues, costs and cash profits for . The future cash profits are then discounted to the present to arrive at the total value of . The total value divided by number of shares outstanding is the Price estimate.
VALUATION HIGHLIGHTS
- Productivity And Business Processes constitute 46% of the Trefis price estimate for Microsoft's stock.
- Intelligent Cloud constitutes 45% of the Trefis price estimate for Microsoft's stock.
WHAT HAS CHANGED?
Latest Earnings: Q3 FY 2026
Microsoft reported Q3 2026 revenue of $82.9 billion, representing an 18 percent increase year-over-year. GAAP net income rose 23 percent to $31.8 billion, resulting in diluted EPS of $4.27, which exceeded consensus estimates of $4.06. The quarter was defined by the exceptional performance of the Microsoft Cloud, which grew 29 percent, and a 40 percent surge in Azure revenue. AI-related services contributed significantly to this growth, with AI revenue up 123 percent year-over-year as enterprise customers scaled their generative AI deployments.
Note: Microsoft's FY'25 ended on June 30, 2025. Q3 FY'26 ended on March 31, 2026.
Launch of Microsoft 365 E7 and Frontier AI Agents
Microsoft announced the general availability of Microsoft 365 E7: The Frontier Suite and Microsoft Agent 365 on May 1, 2026. This new tier represents a strategic pivot toward agentic AI, allowing organizations to deploy autonomous digital agents that handle complex workflows across the enterprise ecosystem. The launch is supported by an amended agreement with OpenAI that grants Microsoft royalty-free access to long-term intellectual property, further cementing its position as the primary platform for commercial AI applications.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of Microsoft's value that present opportunities for upside or downside to the current Trefis price estimate:
Intelligent Cloud and AI
- Azure and AI Services Growth: Azure growth reached 40 percent in the most recent quarter, driven by the rapid adoption of GPU-accelerated workloads. Trefis estimates currently assume a normalization to 30 percent by 2027. If Microsoft continues to capture 100 percent plus growth in AI-specific revenue, it could provide a 12 percent upside to the share price. However, supply-chain constraints in high-performance silicon could lead to a 5 percent revenue miss in the cloud segment.
- Productivity and Business Processes Efficiency: The rollout of the E7 tier and Copilot features has driven average revenue per user (ARPU) higher. Current Trefis models assume mid-single-digit ARPU growth. A faster-than-expected migration of the enterprise base to the Frontier Suite could increase Productivity segment margins by 200 basis points, creating an 8 percent upside to the valuation.
For additional details, select a division from the interactive Trefis split for Microsoft at the top of the page.
BUSINESS SUMMARY
Microsoft is a global technology leader that develops and licenses software, services, devices, and solutions. Its business is organized into three primary segments: Productivity and Business Processes (Office 365, LinkedIn), Intelligent Cloud (Azure, Windows Server), and More Personal Computing (Windows, Xbox, Surface). The company's strategy focuses on a "cloud-first, AI-first" approach, leveraging its massive installed base and enterprise relationships to lead the transition to generative AI.
SOURCES OF VALUE
The Intelligent Cloud segment is the primary driver of Microsoft's value due to its industry-leading growth and the scalable nature of the Azure platform.
Azure Ecosystem and Cloud Scale
Azure serves as the foundational infrastructure for the modern digital economy, holding a dominant position in the hybrid cloud market. Its ability to integrate seamlessly with existing enterprise on-premises software creates high switching costs and a powerful moat. The massive scale of Microsoft's data center footprint allows for superior margins compared to smaller cloud providers.
Ubiquity of Office 365 and Productivity Software
Microsoft 365 is the de facto standard for business productivity, with a massive and loyal user base. The transition to a subscription-based model has created a highly predictable, high-margin recurring revenue stream. The integration of AI agents and Copilot into this ecosystem further differentiates the product from open-source or low-cost competitors.
Strategic Gaming and Content Vertical
With the acquisition of Activision Blizzard, Microsoft has become one of the world's largest gaming companies. This segment provides a valuable touchpoint for the consumer market and serves as a testing ground for advanced graphics and AI technologies. The Game Pass subscription model mirrors the success of the company's enterprise software strategy.
KEY TRENDS
Evolution Toward Agentic AI Workflows
The industry is moving beyond simple chatbots to autonomous AI agents that can perform multi-step tasks. Microsoft's early lead with Agent 365 positions it to capture the first wave of enterprise-grade automation spend. This trend is expected to drive a significant replacement cycle for legacy software that lacks native AI integration.
Massive Capital Expenditure for AI Infrastructure
Microsoft has projected 2026 capital expenditures to reach $190 billion to support the global demand for AI. While this increases the company's capital intensity, it also builds a formidable physical moat. The company is increasingly using custom silicon, such as the Maia and Cobalt chips, to reduce its long-term reliance on external hardware vendors and optimize power efficiency.
Resilience in Enterprise Subscription Models
Despite macroeconomic volatility, enterprise spending on core cloud and productivity software remains resilient. Organizations are prioritizing digital transformation as a means of reducing labor costs through automation. This secular trend supports Microsoft's ability to maintain premium pricing and strong operating margins even in a high-interest-rate environment.
Methodology
Trefis analyzes how a company's products impact its stock price. Using mathematical models to forecast a company's future revenues, costs and cash profits then discounting them to the present, Trefis comes up with a Trefis Price. The Trefis Price is an estimate of the fair or intrinsic value of the company's present stock price.
The selection process
The Trefis tool currently covers 200+ symbols. In building its coverage Trefis selected companies using the following criteria:
- Companies with high interest among retail investors were more likely to be selected. Interest among retail investors was judged by percentage of retail ownership, overall volume of news flow, as-well-as general awareness in the marketplace.
- Market cap/size: Larger cap companies are more popular and cater to the interests of a larger set of investors/finance site visitors, and as-such were more likely to be selected.
- Sector-wise coverage build-out: Trefis also selected to cover companies in the same market, at the same time. For example, when Trefis started covering Apple, covering other companies like Hewlett Packard and Dell in the mobile, and notebooks/desktop markets was a natural next step.
Trefis initially started out covering companies in technology, media and telecom sectors. Since then it has expanded coverage to consumer, automotive, financial services and energy. Trefis is currently building out more coverage within industrials and will be moving into health care over the next year. Trefis also builds out coverage selectively on smaller companies that have high growth potential as well as companies that are in the process of going public and attract interest from finance site visitors and investors.
Trefis does not favor any companies, except follow the selection mechanism outlined above to guide its judgment.
The Trefis tool limitations:
- The Trefis price estimate may not converge with market price: The Trefis price estimate is an estimate of the intrinsic value of a company; just like a price estimate that any other Wall Street firm might come up with. Trefis understands that multiple factors, some quantifiable, and some not so easily tackled, influence a company's stock price. Though the Trefis view is a very detailed fundamental model of the business, it is still just a model - an artificial representation of the real company, which is much more complex.
- No user modification of structure: While Trefis allows users to modify forecasts for any of the drivers in its analysis of a company; it currently does not allow users to change the structure by adding or removing drivers or divisions.
The Trefis Tool Key assumptions
- The Trefis price includes forecasts of a company's fundamental drivers (examples: pricing, units, market share of a company's product lines), which are then factored into the Trefis price estimate for the company's stock.
- In addition, Trefis discounts a company's cash flows at a company-specific discount rate. Cash flows beyond the explicit forecast period are accounted for using a terminal growth rate.
IMPORTANT: The projections or other information generated by the Trefis price estimate tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. Results will vary with each use and over time.