KStatistics information for microsoft stock
- Current price: $420.77
- Target stock price (medium): ~$857
- Street target: ~$562
- Potential total return: ～104%
- Annual IRR: ~19%/year
- Revenue reaction: -3.93% (April 29, 2026)
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what happened?
Microsoft (MSFT) Heading into fiscal 2026 third-quarter results on April 29, the stock has fallen 12% since the beginning of the year, marking the company’s worst quarterly stock performance since 2008. The Bulls maintained that their infrastructure is working. Bears said the $190 billion in capex induced in 2026 proved that returns were still too far away. All headline metrics beat consensus. Regardless, the stock price fell 3.93%. The question is no longer whether Microsoft’s AI business is real. The question is whether investors understand how things will get worse from here.
What the numbers actually showed
According to Beats & Misses data from TIKR, sales rose 18% year over year to $82.9 billion, beating the average analyst estimate of $81.43 billion by 1.79%. EPS of $4.27 beat the consensus of $4.06 by 5.22%. Azure grew 40% at constant currency, beating analysts’ expectations of about 39%.
CEO Satya Nadella acknowledged that the AI business had an annual recurring revenue run rate of over $37 billion, an increase of 123% year over year. Microsoft 365 Copilot has more than 20 million paid seats, an increase of 250% year over year. Mr. Nadella was clear about durability. “Weekly engagement is now on par with Outlook as more users adopt Copilot.” The stock fell after CFO Amy Hood pegged capital spending for the 2026 calendar year at about $190 billion, well above Visible Alpha’s consensus of $154.6 billion. Free cash flow for the quarter was $15.8 billion, with operating cash flow of $46.7 billion and capital expenditures of $31.9 billion.
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Shifting business models Investors are underpricing
The most important disclosure from the April 29 conference call received little attention after the earnings call. Microsoft is converting its entire commercial revenue model from per-seat pricing to per-seat and per-consumption pricing, with three product lines already in the process.
In customer service, approximately 60% of Dynamics 365 service customers already purchase usage-based credits in addition to seats. For developer tools, GitHub Copilot will move to full consumption-based pricing on June 1, 2026, with all plans now including a monthly allotment of AI credits based on token consumption and the option to purchase additional usage. Nearly 140,000 organizations use GitHub Copilot, and enterprise subscribers have grown nearly 3x year over year. In terms of productivity, Copilot credit consumption offers nearly doubled quarter-on-quarter.
Mr. Nadella explained this change firsthand. “All of our per-user businesses, like productivity, coding, and security, become per-user and per-usage businesses.” In the Pure Sheet model, revenue is determined by the product of price and number of employees. Seat and pay-as-you-go models grow revenue per customer as usage increases, without the need for new sales. Hood made the ROI case in a nutshell during the conference call. “If it creates value and positive outcomes, the TAM expansion and ROI here will be very good.”
The consumption engine is an AI agent. Monthly active usage of first-party agents has increased 6x since the beginning of the year. Copilot queries per user increased nearly 20% quarter over quarter. LinkedIn’s agent recruitment tool already has an annual revenue run rate of over $450 million, an early sign of how this model will scale.
Why investors think capital investment is not a problem
Approximately two-thirds of the $31.9 billion in capital spending in the third quarter was devoted to short-term assets, primarily GPUs and CPUs, that directly support short-term revenues. The remaining third was allocated to long-life data center infrastructure. Mr. Hood’s material disclosure was not the amount. That’s because “broad customer demand continues to outstrip supply.” Microsoft is spending $190 billion because it can’t build fast enough to meet the demand it already has.
Of that $190 billion, about $25 billion reflects rising memory costs due to global demand for AI chips, Hood explained. As component prices normalize, the intensity of capital expenditures eases and free cash flow recovers. TIKR’s consensus estimates indicate that free cash flow will decline in FY2026, with a sharp recovery starting in FY2028.
Microsoft is also pushing for efficiency inside the build. The time it takes for new GPUs to go from dock to production has decreased by nearly 20% since the beginning of the year. The Fairwater data center in Wisconsin came online six weeks ahead of schedule. The first-party Maia 200 AI accelerator delivers over 30% better tokens per dollar compared to the latest third-party silicon, compressing the cost per token for every AI workload processed. Mr. Hood confirmed that even through the build cycle, the operating profit margin for the full year of 2026 will expand by about 1 percentage point year-on-year, and that “further double-digit sales and operating profit growth” is expected in 2027 as well.
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TIKR Advanced Model Analysis
- Current price: $420.77
- Target stock price (medium): ~$857
- Street target: ~$562
- Potential total return: ～104%
- Annual IRR: ~19%/year
- Revenue reaction: -3.93% (April 29, 2026)
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TIKR’s mid-case yields an earnings CAGR of approximately 16%. Two revenue drivers are Azure, which continues to gain enterprise cloud market share as AI workloads grow, and Microsoft 365 Copilot, which deepens monetization per customer as seat and pay-as-you-go models mature. TIKR’s consensus forecast is that revenue will reach approximately $607 billion by FY2030, up from $282 billion in FY2025.
Margins will be driven by operating leverage in Productivity and Business Processes, with net margins expected to widen to approximately 39% as the infrastructure cycle peaks. LTM ROIC was 27.4% per TIKR, reflecting current capex pressures. That number should recover as new capacity turns into revenue.
The main risk is timing. Mr Hood confirmed that supply would be constrained until at least 2026. Without a clear explanation of demand, if Azure’s growth rate falls below 35% for two consecutive quarters, the monetization schedule will be at risk. The low case of the TIKR model assumes a revenue CAGR of about 14%, but because the underlying business is so large, it still implies a price of about $1,120 by 2034.
According to TIKR’s competitors page, Microsoft is valued at 8.62x NTM EV/Sales and 13.83x NTM EV/EBITDA. ServiceNow trades at 5.38x per NTM EV/Revenue and 14.50x per NTM EV/EBITDA. Salesforce stock trades at 3.48x NTM EV/Revenue and 8.83x NTM EV/EBITDA. Microsoft offers premiums that reflect the company’s broad positions across cloud infrastructure, productivity, developer tools, and security.
The Street has 41 Buys, 11 Outperforms, 3 Holds, 0 Underperforms, and 0 Sells, with an average target price of approximately $562 per TIKR Street Target Data as of May 07, 2026. TIKR’s mid-case represents an upside of about twice that if seat and consumption monetization were compounded as modeled.
conclusion
See the addition of Microsoft 365 Copilot net paid seats in our fiscal 2026 Q4 earnings report. Hood is targeting continued growth in net paid seats in the fourth quarter. As seat additions accelerate and usage increases further, the consumer revenue tier will activate faster than the street model. If seat capacity growth stagnates, the monetization schedule will be postponed. Third quarter data and records both show that spending is working. Whether the stock price reflects that over the next 12 months will depend on whether usage increases enough to offset the company’s $190 billion in annual capital spending.
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Disclaimer:
Please note that TIKR articles are not intended to serve as investment or financial advice from TIKR or the content team, and are not recommendations to buy or sell any stock. We create content based on TIKR Terminal investment data and analyst forecasts. Our analysis may not include recent news or important updates for the company. TIKR has no position in any stocks mentioned. Thank you for reading. Enjoy your investment.
