Last Update08 Oct 25
Fair value Increased 1.12%

Microsoft’s analyst price target has been raised from approximately $614 to $621. This reflects increased confidence among analysts in Azure’s accelerating growth, the company's robust positioning in the AI ecosystem, and recent capacity and customer mix enhancements.

Analyst Commentary

Recent street research highlights a strong sentiment among analysts toward Microsoft's future performance, with both bullish and cautious viewpoints emerging based on recent financial results, AI leadership, and broader industry dynamics.

Bullish Takeaways

Bullish analysts have notably raised price targets, in some cases multiple times this quarter. This reflects increased conviction in Microsoft's accelerating Azure growth and its ongoing AI leadership.
Multiple research notes cite Microsoft's robust Q4 results. These include significant growth in Azure and Office, with evidence of positive revenue surprises and sustained margin expansion.
Analysts believe Microsoft is well positioned to benefit from strong and durable demand for AI infrastructure and applications. This underpins expectations for mid- to high-teens top-line growth over the coming years.
Microsoft’s ongoing ability to beat expectations, deliver strong free cash flow, and maintain high earnings quality supports its perceived valuation upside. This has led to several upgrades and elevated rankings as a top pick in the software sector.

Bearish Takeaways

Bearish analysts caution that current share levels may be approaching full valuation after a significant run-up. They note that robust Azure performance and AI tailwinds are now well-telegraphed to the market.
There are concerns about potential capacity constraints and the impact of major contracts with companies like Oracle. These factors could limit Azure’s growth runway if not addressed effectively.
Some caution that, with high investor expectations already priced in, further upside may require continued outperformance on both financial execution and innovation fronts. This could present a higher bar for future quarters.
Competitive pressures in key segments, including Cloud and security, remain relevant. Some analysts are waiting for additional proof points before turning more positive on sustained market share gains.

What's in the News

Microsoft reaffirmed its commitment to Xbox gaming hardware, stating it is actively investing in future first-party consoles and devices. This comes amid rumors of a potential exit from gaming hardware. (Windows Central)
OpenAI, backed by Microsoft, reached a $500B valuation following a secondary share sale. The company continues expanding with major semiconductor supply agreements for its Stargate data center project. (Reuters, Financial Times)
Microsoft is preparing to roll out a free, ad-supported version of Xbox Cloud Gaming. The company is testing video game streaming with preroll ads for internal users. (The Verge)
Microsoft is integrating its AI subscription services into Office 365 by announcing a higher-priced Microsoft 365 tier with new AI features, including integrated chatbots and image generation. (Bloomberg)
Microsoft added Anthropic’s AI model to its Copilot assistant, diversifying its generative AI capabilities beyond its long-time partner OpenAI. (CNBC)

Valuation Changes

Fair Value Estimate has risen slightly from $613.89 to $620.74. This reflects increased analyst optimism regarding Microsoft's outlook.
Discount Rate increased marginally from 8.48% to 8.51%, indicating a slightly higher risk or return expectation in analyst models.
Revenue Growth projections edged up from 14.69% to 14.78%, pointing to modestly stronger anticipated topline expansion.
Net Profit Margin decreased slightly from 37.28% to 37.07%, suggesting analysts project a marginal compression in profitability.
Future P/E Ratio has climbed from 36.75x to 37.30x. This implies a higher valuation multiple being applied to Microsoft’s future earnings.

Rapid AI and cloud integration, along with a strong subscription model, are driving sustainable high-margin growth and future earnings predictability.
Increased demand for security and enterprise cloud solutions, coupled with operational efficiency, supports margin stability despite continued high investments.
Heavy AI and cloud investment increases financial risk, with margin pressures and dependency on large contracts amplifying exposure to customer shifts and operational challenges.

Catalysts

About Microsoft

Develops and supports software, services, devices, and solutions worldwide.What are the underlying business or industry changes driving this perspective?

The accelerated adoption and integration of AI capabilities across Microsoft's infrastructure and application stack-including Azure AI, Copilot, Dynamics 365, GitHub, and Fabric-are driving new revenue streams and usage intensity, positioning Microsoft to increase ARPU and sustain double-digit top-line growth as enterprise digital transformation and AI deployment gathers pace.
Ongoing expansion of Azure, with robust growth in large enterprise workloads, significant customer migrations (e.g., SAP on Azure), and increasing commitments (reflected in a $368 billion backlog), points to durable, recurring high-margin revenue from core cloud services that will support operating income growth and margin stability.
Rising demand for integrated cybersecurity solutions as more organizations shift to cloud, hybrid, and remote work models supports further growth in Microsoft's security business, which is capturing additional share and provides a high-margin, sticky revenue stream expected to bolster gross and net margins.
The entrenched subscription-based revenue model-across Microsoft 365, Dynamics, and Xbox Game Pass-combined with strong contracted backlog and steady ARPU growth, enhances future earnings visibility and predictability, facilitating market share gains and supporting long-term earnings and free cash flow growth.
Management's focus on software-driven efficiency gains, platform scalability, and margin expansion through compounding innovation curves (e.g., software optimizations delivering 90% more tokens per GPU year-on-year) is expected to offset infrastructure investment costs, enabling flat to expanding operating margins even as CapEx remains elevated to meet robust demand.

Microsoft Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Microsoft's revenue will grow by 14.7% annually over the next 3 years.
Analysts assume that profit margins will increase from 36.1% today to 37.3% in 3 years time.
Analysts expect earnings to reach $158.4 billion (and earnings per share of $21.53) by about September 2028, up from $101.8 billion today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 36.7x on those 2028 earnings, up from 36.4x today. This future PE is greater than the current PE for the US Software industry at 36.2x.
Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.48%, as per the Simply Wall St company report.

Microsoft Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The ongoing need for massive capital expenditures (CapEx), especially for AI infrastructure and data centers, could pressure free cash flow and operating margins if revenue growth slows or if AI adoption does not meet expectations.
Rising reliance on major AI start-ups and hyperscale workloads as key Azure customers presents concentration risk; if these companies in-source infrastructure or become competitors, future revenue and growth from these large contracts could be at risk.
Sustained declines in legacy on-premises and device segments (e.g., Windows OEM, on-premises servers) signal core product saturation, which may limit top-line revenue diversification and leave Microsoft more dependent on newer, unproven cloud/AI businesses.
Gross margin pressure is emerging due to the scaling and mix shift toward lower-margin Azure/AI offerings, and management guides for flat operating margins, suggesting limited near-term profitability improvement despite revenue growth.
Elevated global backlog and strong contracted commitments create high delivery expectations-any supply chain disruptions, capacity shortfalls, or project execution risks could negatively impact revenue recognition, customer satisfaction, and earnings quality.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $613.892 for Microsoft based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $700.0, and the most bearish reporting a price target of just $483.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $425.0 billion, earnings will come to $158.4 billion, and it would be trading on a PE ratio of 36.7x, assuming you use a discount rate of 8.5%.
Given the current share price of $498.41, the analyst price target of $613.89 is 18.8% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.