Microsoft’s MSFT stock has been dragged down with other software names this year as investors question how artificial intelligence may disrupt their business models. But we don’t think AI will harm Microsoft’s economic moat. In fact, we recently reiterated our Wide Morningstar Economic Moat Rating for Microsoft while downgrading the moat ratings for other software stocks. We expect Microsoft to thrive regardless of AI, given its diversified product portfolio that benefits from switching costs, network effects, cost advantages, and even intangible assets. Microsoft remains our top pick in software, as it trades a remarkable 33% below our $600 fair value estimate; it’s an attractive core stock idea for long-term investors who can ride out the market’s negative sentiment.

Microsoft is one of three public cloud providers that can deliver a wide variety of platform-as-a-service and infrastructure-as-a-service solutions at scale. Thanks to its investment in OpenAI, the company has also emerged as a leader in AI. In addition, Microsoft has enjoyed great success in upselling users on higher-priced Office 365 versions, notably to include advanced telephony features. These factors have combined to drive a more focused company that offers impressive revenue growth with high and expanding margins and deepening ties with customers. We believe that Azure is the centerpiece of the new Microsoft; even though we estimate it is already an approximately $75 billion business, it is still growing at more than 30% annually.

Key Morningstar metrics for Microsoft

  • Fair Value Estimate: $600
  • Star Rating: 5 Stars
  • Economic Moat Rating: Wide
  • Uncertainty Rating: Medium

Economic Moat Rating

Microsoft’s wide economic moat arises primarily from switching costs, with network effect and cost advantage as secondary moat sources. The company has immense product breadth, and its applications are tightly integrated with one another. In our opinion, the strength of these products is crucial but should not overshadow the importance of all the solutions being offered under one umbrella, as customers are usually looking to consolidate vendors. As Microsoft offers a wider set of related and compelling solutions, we believe it becomes more deeply entrenched as its customers adopt multiple products. We expect the company to earn returns in excess of its cost of capital over the next 20 years.

Fair Value estimate for Microsoft stock

Our $600 fair value estimate implies a fiscal 2026 enterprise value/sales multiple of 14 times and an adjusted price/earnings multiple of 39 times. We model a five-year compound annual growth rate for revenue of approximately 13%, including the Activision acquisition, with some near-term pressure from macro and currency factors. We believe revenue growth will be driven by Azure, Office 365, Dynamics 365, LinkedIn, and emerging AI adoption. Azure is the single most critical revenue driver over the next 10 years, in our view, as hybrid environments (where Microsoft excels) drive mass cloud adoption. We model operating margin increasing modestly to 46% in fiscal 2029, driven by improvements in gross margin as Azure scales as well as some operating leverage.

Risk and Uncertainty

Microsoft’s high market share in client-server architecture over the last 30 years means that significant high-margin revenue is at risk. The company must continue to drive revenue growth in cloud-based products faster than revenue declines in on-premises products. Microsoft is acquisitive, and although some purchases have worked out well, it has had several high-profile flops, including Nokia and aQuantive. The public cloud buildout is in its early phases, and Amazon Web Services has taken the market by storm, with Azure trailing. This is a rapidly evolving market, and Microsoft must continually adjust its offerings, add solutions to the stack, and compete with a company that has built a business around aggressive pricing.

Microsoft bulls say

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

Microsoft bears say

  • Momentum is slowing in the 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.

This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of March 17, 2026, close unless otherwise noted.