Microsoft MSFT is set to release its fiscal third-quarter 2026 earnings report on April 29. 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: ★★★★★
  • Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: Medium

Microsoft earnings release date

  • Wednesday, April 29, after the close of trading

What to watch for in Microsoft’s fiscal Q3 earnings

  • We believe Azure has been generally strong but capacity-constrained. Management has been talking about the capacity issues fading away, but the timing keeps getting pushed out. Business has been booming because of artificial intelligence. Last quarter, Azure was ahead of guidance, but the March-quarter guidance was slightly shy. The big controversy was the company’s plan to dedicate some portion of Azure usage to internal demand. 
  • We’ll look for any commentary about remaining performance obligations after the surge from the OpenAI deal.
  • We expect AI monetization to be an important consideration. The firm is making a big bet with capital expenditure, so any green shoots here are helpful. Last quarter, Microsoft said it had 15 million paying Copilot customers, which seemed disappointing. The new Claude Copilot may be able to drive adoption higher.
  • We expect margins to be fine, but depending on capex, depreciation could start ramping more meaningfully.
  • We’re also looking for commentary on traditional workloads within AI. We believe it was somewhat light recently, and Microsoft’s steps to address this seemed to go well for the September and December quarters.
  • Software stocks, including Microsoft, have lagged the broader market since July 2025, so we think shares are attractive. 

Fair Value Estimate for Microsoft

With its 5-star rating, we believe Microsoft’s stock is significantly undervalued compared with our long-term fair value estimate of $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 five-year compound annual growth rate for revenue of approximately 13%, inclusive of the Activision acquisition.

Economic Moat Rating

We believe Microsoft merits a wide economic moat rating, 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, and 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 earnings before interest, taxes, depreciation, and amortization (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. 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; it 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.

Although several of Microsoft’s acquisitions have failed, its LinkedIn, GitHub, and ZeniMax investments are shaping up as successes. The October 2023 acquisition of Activision for $69 billion has been seamless. The public cloud buildout remains in its early phases, and Microsoft must continually adjust its offerings and add solutions to the stack for Azure to compete with Amazon Web Services (AWS). While we do not see significant ESG risks, we note Microsoft faces strong competition for software engineers on the hiring front. It also faces risks arising from a potential data breach within its data centers.

MSFT bulls say

  • Public cloud is widely considered the future of enterprise computing, and Azure is a leading service that benefits from the evolution to hybrid and then 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.