Microsoft MSFT is set to release its fiscal first-quarter 2026 earnings report. Here’s Morningstar’s take on what to look for in Microsoft’s earnings and the outlook for its stock.

Key Morningstar metrics for Microsoft

  • Fair Value Estimate: $600.00
  • Morningstar Rating: ★★★★
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium

Microsoft earnings release date

  • Wednesday, Oct. 29, after the close of trading in the US

What to watch for in Microsoft’s Q1 earnings

  • Any additional color on the recent structural change with CEO Satya Nadella becoming more involved on the technology side.
  • Anything on artificial intelligence. The company is making a big bet with its capex, so any green shoots here are helpful.
  • Azure has been generally strong but capacity-constrained. Management has been talking about the capacity issues fading away over the next two quarters.

Fair Value estimate for Microsoft stock

Our fair value estimate for Microsoft is $600 per share, which implies a fiscal 2026 enterprise value/sales multiple of 14 times and an adjusted price/earnings multiple of 39 times.

We model a 5-year compound annual growth rate for revenue of approximately 13% inclusive of the Activision acquisition. We envision stronger revenue growth ahead as Microsoft’s prior decade was bogged down by the downturn in 2008, the complete evaporation of mobile handset revenue from the disposal of the Nokia handset business, as well as the onset of the model transition to subscriptions (which initially results in slower revenue growth). However, we believe macro and currency factors will pressure revenue in the near-term.

Economic Moat rating

For Microsoft overall, we assign a wide economic moat, arising primarily from switching costs, with network effects and cost advantages as secondary moat sources. Based on the company’s segments, we believe the productivity and business processes and intelligent cloud segments have earned wide moats, while the more personal computing unit warrants a narrow moat. We believe Microsoft’s moat will probably allow the company to earn returns in excess of its cost of capital over the next 20 years.

Financial strength

We believe Microsoft enjoys a position of excellent financial strength arising from its strong balance sheet, growing revenue, and high and expanding margins. As of June 2025, Microsoft had $95 billion in cash and equivalents, offset by $43 billion in debt, resulting in a net cash position of $51 billion. Gross leverage is at 0.3 times fiscal 2025 EBITDA. Our base case assumes that revenue grows at a healthy pace, driven by Azure public cloud adoption, Office 365 upselling efforts, AI adoption, and broader digital transformation initiatives. We see strong margins improving further over the next several years. Free cash flow margin has averaged near 30% over the last three years, which we expect to generally improve over time.

Risk and uncertainty

We assign Microsoft an Uncertainty Rating of Medium. The firm faces risks that vary among the products and segments. High market share in the client-server architecture over the last 30 years means significant high-margin revenue is at risk, particularly in OS, Office, and Server. Microsoft has thus far been successful in growing revenues in a constantly evolving technology landscape, and is enjoying success in both moving existing workloads to the cloud for current customers and attracting new clients directly to Azure. However, it must continue to drive revenue growth of cloud-based products faster than revenue declines in on-premises products.

MSFT bulls say

  • Public cloud is widely considered to be the future of enterprise computing, and Azure is a leading service that benefits the evolution to first to hybrid environments, and then ultimately to public cloud environments.
  • Microsoft 365 continues to benefit from upselling into higher-priced stock-keeping units as customers are willing to pay up for better security and Teams Phone, which should continue over the next several years.
  • Microsoft has monopoly-like positions in various areas (OS, Office) that serve as cash cows to help drive Azure growth.

MSFT bears say

  • Momentum is slowing in the ongoing shift to subscriptions, particularly in Office, which is generally considered a mature product.
  • Microsoft lacks a meaningful mobile presence.
  • Microsoft is not the top player in its key sources of growth, notably Azure and Dynamics.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.