Executive Summary

Key highlights

In this report, we revisit the Q4 FY2025 results for MSFT, released in July 2025, and how this positions our view in context.

Financial results at a glance:

•         Productivity and Business Processes revenue of $32.2 billion projected for September Q1 2026E, slightly below the $33.1 billion actual in June Q4 2025, indicates typical sequential normalisation but ongoing strong growth driven by Microsoft 365 Commercial and Dynamics 365. This supports our thesis on resilient, high-quality annuity revenue.
•        Intelligent Cloud’s revenue forecast of $30.1 billion for September Q1 2026E closely matches June Q4 FY2025 actual of $29.9 billion, validating our view that Azure and cloud services remain core growth engines powered by AI infrastructure, securing Microsoft’s leadership and competitive moat.
•        More Personal Computing’s expected $12.9 billion in September Q1 2026E versus $13.5 billion actual in June Q4 2025 reflects expected consumer market cyclicality, but stable contribution from gaming and advertising reinforces diversification.
•       Overall, the consistency between forecast and actual results aligns with our investment thesis of durable cloud and productivity momentum offsetting cyclical consumer pressures. It bolsters confidence in Microsoft’s sustainable growth, strong free cash flow, and market-leading AI positioning underpinning the “Undervalued” rating and further upside potential.

Analyst thesis

Our recommendation is based on:
•    Microsoft Azure is benefiting from the rapid adoption of multi-cloud strategies, while Azure Local (formerly Azure Stack HCI) and Azure Arc strengthen Microsoft’s hybrid control plane across on-premises and cloud environments.
•    Microsoft’s broad product range drives a strong subscription model with annuity-type revenue and customer loyalty supported by a strong moat (high switching costs, innovation, scale, network effect, and brand). This is evident in the high and stable margins it achieves over the long term.
•    While Microsoft shares trade at a premium relative to peers, this valuation is supported by its superior organic revenue growth, strong free cash flow generation, and a leading cloud platform.
•    Microsoft is well placed to be a strong benefactor of AI.