Microsoft CorporationNASDAQ:MSFT
Published 2026-07-30, with market data as of the 2026-07-29 close. All figures are sourced from Microsoft's official FY2026 annual report (Form 10-K, filed 2026-07-29, fiscal year ended 2026-06-30).
Microsoft's FY2026 revenue was $331.8B (+18% YoY), net income $133.7B (+31% YoY), and diluted EPS $17.95 (+32% YoY); Microsoft Cloud revenue reached $214.4B (+27% YoY) and commercial remaining performance obligations (cRPO) hit a record $678B (+84% YoY), with Azure growth reaccelerating to +41%.
But AI-infrastructure capex rose 79% YoY to $115.9B and free cash flow fell 6.4% YoY to $67.0B, stoking market worries about AI returns; since the 10-K filing the stock has re-rated from $390.54 to $444.00 (+13.7%). We rate it Buy with a 12-month target of $448, about 0.9% above the current price.
§01Investment Summary
For Microsoft, the core question today is not whether cloud and AI are still worth investing in, but what multiple the market will pay for a blue-chip tech asset that is still growing at a mid-teens-to-high-teens clip, posting record margins, and carrying a net-cash balance sheet. We cross-check three P/E scenarios (FY27E EPS of $19.47 times 18/23/28x) to a 12-month price target of $448. The worry was triggered by AI-infra capex surging and pressuring free cash flow — not by any deterioration in fundamentals.
Four reasons to buy: Microsoft Cloud revenue of $214.4B (+27%) and a record cRPO of $678B (+84%) with Azure reaccelerating to +41%; operating margin rising three years running (44.6%->46.8%); service revenue up 48% over three years to $267.1B, steadily lightening and thickening the mix; and the company still buying back shares at $16.7B a year.
Three main risks: AI-infra capex +79% pushed FY2026 free cash flow down 6.4% YoY; the More Personal
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