Microsoft Earnings: We Were Wrong When We Thought Last Quarter Would Be Hard to Top

Key Morningstar Metrics for Microsoft

• Fair Value Estimate: $600
• Morningstar Rating: ★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Microsoft’s Earnings

Microsoft’s MSFT fourth-quarter results topped the high end of guidance. Revenue increased 18% year over year to $76.4 billion, compared with the high end of guidance of $74.3 billion, while operating margin was 44.9%, compared with the high end of guidance at 43.8%.

Why it matters: Results are strong from any angle, with meaningful upside to our estimates on both the top and bottom lines. Revenue for all segments checked in above the high end of guidance. Critically, we see very impressive performance within Azure, in both traditional and AI workloads.

• In our view, near-term demand indicators are robust. Commercial bookings grew a stout 30% year over year in constant currency based on surging Azure commitments from OpenAI and other large deals. Remaining performance obligations increased 37% year over year to $368 billion.
• Demand for Azure AI services is surging, which is clearly a long-term positive. While Azure remains capacity-constrained, both traditional and AI workloads were strong. Azure growth was 39% in constant currency for the quarter and easily topped guidance of 34%-35%.

The bottom line: We raise our fair value estimate for wide-moat Microsoft to $600 per share, from $505 previously, on strong results and a bullish outlook, moving our near-term growth estimates higher and profitability slightly higher throughout our forecast. The stock remains one of our top picks.

Coming up: First-quarter guidance is better than both our and FactSet consensus estimates, including $75.25 billion in revenue, 46.6% operating margin, and $3.65 in EPS at the midpoints. For fiscal 2026, the firm expects double-digit revenue growth and relatively flat operating margins versus 2025.

Big picture: We see results reinforcing our long-term thesis, which centers on the expansion of hybrid cloud environments, the proliferation of artificial intelligence, and Azure. We center our growth estimates around Azure, Microsoft 365 E5 migration, and traction with the Power Platform.