A $100 Billion Reason to Buy Microsoft Stock Now

Software giant Microsoft (MSFT) reported its fiscal Q4 2026 results, and the share price action before the market closed said it all. Up more than 15% in yesterday's trading session, MSFT stock gave us a hint of what was to come as the Q4 numbers left little room for complaint.

Overall revenue, Azure revenue, and earnings—each of these metrics exceeded Street expectations, accompanied by a fortress-like balance sheet and robust cash flows.

Valued at a market cap of $2.9 trillion (which can soon surpass the $3 trillion mark following its strong showing in Q4), MSFT, amid a slowdown in the wider software stocks, is still down 5% on a year-to-date (YTD) basis. While the dividend yield of 0.93% was not of much support during these difficult times for shareholders, the latest quarterly numbers reinforce Microsoft's place in the AI landscape.

As an interesting side note, shares of the iShares Expanded Tech-Software Sector ETF (IGV), one of the largest ETFs covering software stocks, are up 6.9% over the past five trading sessions, which culminated in the bellwether's (Microsoft) solid quarterly results, making any talk of software's obituary feel a little premature at the moment.

Anyway, which are the aspects of the company's Q4 results that are driving the optimism around Microsoft again? Let's find out.

Azure Assured

For a company valued at close to $3 trillion, growing revenues at late-teens rates is not normal. Yet that is what Microsoft has been doing consistently, and Q4 was no different.

Revenues increased by 18% from the previous year to $90 billion, beating the estimates by $2.4 billion. The Intelligent Cloud segment, which includes Azure, grew by 31.5% on a YoY basis to $39.31 billion. Although operating margins for the segment remained almost unchanged from the previous year, in absolute terms, operating income for the segment rose by 31.4% in the same period to $15.96 billion. Specifically, Azure revenues were up 43% from the previous year, wherein expectations were between 39% and 40%. In fact, for the full year, Azure's revenue surpassed a run rate of $100 billion for the first time, as commercial backlog almost doubled yearly to $684 billion (of which 30% will be recognized over the next year), bearing testament to the strong demand for its cloud suite of products and services

Sales from the Productivity and Business Processes segment, which includes the Microsoft 365 Copilot business, witnessed a rise of 14% from the previous year to $37.8 billion in the quarter. Enterprise adoption for Microsoft 365 Copilot continues to be on an upward trajectory. CEO Satya Nadella revealed that “Microsoft 365 Copilot reached over 30 million paid seats.” This was over 20 million in Q3.

Meanwhile, the segment's operating margins at 57.9% did not improve much from the prior year's 57.4%.

However, the contentious ROI on AI investments is certainly visible concerning Microsoft, as both Azure and Copilot are seeing healthy growth rates while reporting operating margins of above 40%. 

This was despite a capital expenditure of $41 billion in the quarter, up 70% from the prior year, and guidance of $50 billion and $175 billion for Q1 and FY27, respectively. Notably, of this $41 billion, CFO Amy Hood revealed that two-thirds of it was for short-lived assets, implying CPUs and GPUs. Why so? Well, Hood pointed towards demand outpacing capacity, with the company's capacity constrained for the calendar year 2026. Notably, the useful life for long-lived assets like data centers and buildings was increased to 25 years from 15 years, which has the potential to aid margins as these assets will now have lower depreciation costs. 

Shifting attention towards other business lines, the More Personal Computing segment, which includes Xbox and the company's personal computing devices, saw its revenues fall by 4% to $12.9 billion. Weakness in the Xbox segment, rising memory costs, and a high inflation environment are restricting customers from spending on discretionary items like gaming consoles and new laptops, even after Microsoft ended support for earlier versions late last year.

However, Q4 2026 saw earnings increasing by 23% from the year-ago period to $4.74 per share, coming in ahead of the consensus estimate of $4.24 per share, making this the ninth consecutive quarter of earnings beat from the company. Having said that, the figure contains a $3.2 billion gain the company witnessed due to its investment in Claude-maker Anthropic.

Cash flows remained robust too. Net cash from operations for the quarter came in at $55.44 billion, up 30% from the prior year. Overall, the company closed the quarter with a cash balance of $76.8 billion, with a short-term debt balance at much lower levels of $9.23 billion.

And all this brings us to valuations, and MSFT fares decently over here. Its forward P/E and P/CF of 20.36 and 13.07 are below the sector medians of 22.31 and 18.28, respectively. Meanwhile, though its forward P/S of 7.54 is above the sector median of 3.21, it is lower than the stock's own 5-year average of 10.86.

Analyst Opinion of MSFT Stock

Considering all this, analysts have deemed MSFT stock to be a consensus “Strong Buy” with a mean target price of $543.08. This denotes an upside potential of about 20% from current levels. Out of 51 analysts covering the stock, 42 have a “Strong Buy” rating, five have a “Moderate Buy” rating, and four have a “Hold” rating.