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Microsoft (MSFT US) Summary

Core Content

Microsoft reported strong financial results for 4QFY26, with revenue rising 18% YoY to US$90.0bn, surpassing both forecasts and the Visible Alpha (VA) consensus. The company's operating profit (OP) grew 18% YoY to US$40.6bn, exceeding expectations by 4%. The results reflect improved performance across all three business segments: Productivity and Business Processes (PBP), Intelligent Cloud (IC), and More Personal Computing (MPC).

Main Points

• Revenue Growth: Microsoft 4QFY26 revenue was up 18% YoY, surpassing both forecasts and VA consensus.
• Operating Profit: OP rose 18% YoY to US$40.6bn, 4% above forecast and consensus.
• Cloud Growth Acceleration: Azure revenue growth reached 43% YoY, beating the guidance of 39-40% and expected to increase to 45% in 1QFY27.
• Microsoft 365 Copilot Adoption: Paid Microsoft 365 Copilot seats reached 30mn in 4QFY26, with net seat additions more than doubling QoQ.
• Operating Margin Expansion: OPM improved to 45.1%, exceeding consensus expectations by 0.2ppts.
• Capital Expenditure (Capex): Capex increased 69% YoY to US$41.0bn, with management updating CY26 capex guidance to US$175bn. Management expects positive free cash flow (FCF) in FY27.
• Valuation Update: Target price (TP) was raised by 3% to US$634.2, implying a 32x FY27E PE. The stock is currently trading at 22.7x FY27E PE, which is considered attractive.
• Forecast Revisions: Revenue and OP forecasts for FY27E and beyond were lifted by 3-5% and 4-6% respectively, reflecting stronger-than-expected performance and efficiency gains.

Key Financial Highlights

Revenue

• FY25A: US$281,724mn (14.9% YoY growth)
• FY26A: US$331,839mn (17.8% YoY growth)
• FY27E: US$392,809mn (18.4% YoY growth)
• FY28E: US$456,749mn (16.3% YoY growth)
• FY29E: US$533,567mn (16.8% YoY growth)

Operating Profit

• FY25A: US$128,528mn (17.4% YoY growth)
• FY26A: US$155,237mn (20.8% YoY growth)
• FY27E: US$182,621mn (17.6% YoY growth)
• FY28E: US$211,659mn (15.9% YoY growth)
• FY29E: US$247,058mn (16.7% YoY growth)

Net Profit

• FY25A: US$101,832mn (31.3% YoY growth)
• FY26A: US$133,749mn (10.4% YoY growth)
• FY27E: US$147,668.2mn (10.4% YoY growth)
• FY28E: US$170,788.8mn (15.7% YoY growth)
• FY29E: US$198,927.1mn (16.5% YoY growth)

P/E Ratio

• FY25A: 32.9
• FY26A: 25.1
• FY27E: 22.7
• FY28E: 19.6
• FY29E: 16.8

Target Price

• Current TP: US$634.20
• Previous TP: US$616.40
• Up/Downside: 40.6%

Financial Performance by Segment

Capital Expenditure (Capex)

• 4QFY26 Capex: US$41.0bn (up 69% YoY)
• CY26 Capex Guidance: US$175bn
• 1QFY27 Capex Guidance: More than US$50bn
• FY27E Capex Estimate: US$200bn

Risks

• Slower-than-expected margin expansion
• Slower-than-expected ramp-up in revenue contribution from AI-related services

Analyst Ratings

• BUY: Stock with potential return of over 15% over the next 12 months
• HOLD: Stock with potential return of +15% to -10% over the next 12 months
• SELL: Stock with potential loss of over 10% over the next 12 months
• NOT RATED: Stock not rated by CMBIGM
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark

Shareholding and Performance

• Shareholding Structure:

  • Vanguard Group: 9.8%
  • Blackrock: 8.0%

• Share Performance:

  • 1-month: 20.9% (Absolute) / 26.2% (Relative)
  • 3-month: 10.6% (Absolute) / 9.6% (Relative)
  • 6-month: 4.8% (Absolute) / -2.1% (Relative)

• Stock Data:

  • Market Cap: US$3,356,643.8mn
  • Avg 3 mths t/o: US$7,178.3mn
  • 52w High/Low: US$542.07 / US$352.83
  • Total Issued Shares: 7,441.0mn

Valuation and Forecast

• DCF Valuation: Target price based on FY27E, with a WACC of 7.9% and terminal growth of 3%.
• Valuation per Share: US$634.2
• Forecast Revisions:
  • Revenue: +3.0% for FY27E, +4.5% for FY28E
  • Operating Profit: +3.9% for FY27E, +5.9% for FY28E
  • Net Profit: +1.1% for FY27E, +3.0% for FY28E
  • OPM: +0.4ppt for FY27E, +0.6ppt for FY28E
  • NPM: -0.7ppt for FY27E, -0.6ppt for FY28E

Analyst Certification

• The research analyst certifies that all views expressed accurately reflect his or her personal views.
• No part of the analyst's compensation is directly or indirectly related to the specific views in this report.
• The analyst has not traded in the stock covered in the report within 30 calendar days prior to the report's issue date and will not do so within 3 business days after the report's issue date.

Summary

Microsoft's 4QFY26 results show strong revenue and operating performance, with tangible returns on capital expenditures becoming evident. The company's cloud business, particularly Azure, is experiencing accelerated growth, and Microsoft 365 Copilot adoption is rising rapidly. Management has kept its CY26 capex guidance unchanged and expects positive FCF in FY27. The stock is currently trading at a 22.7x FY27E PE, which is considered attractive. Analysts have raised their target price to US$634.2, reflecting increased confidence in the company's future performance. The stock is rated as a BUY, with a potential return of over 15% over the next 12 months.