Microsoft Stock Price Forecast: Can Microsoft Stock Bounce From $397 Back Toward $500+?

Microsoft Stock (NASDAQ:MSFT) – AI capex reset, cloud dominance and where the price really sits

Microsoft Stock (NASDAQ:MSFT) trades around $397.15–$397.20, with a previous close at $399.60, after moving between $396.67 and $404.43 during the session and inside a 52-week band of $344.79 to $555.45. That leaves roughly a 28.5% drawdown from the high while the company still carries a market cap near $2.96 trillion, a trailing P/E of about 24.85 and a dividend yield around 0.92%. The equity is no longer priced like a runaway AI mania name; it is trading much closer to a high-quality compounder multiple while the business continues to grow double digits in revenue and almost 30% in net income, and that mismatch between fundamentals and the multiple is the core opportunity. For live tape and intraday structure, the reference point is Microsoft real time chart, which shows a stock consolidating in the high $300s after a violent derating from the mid $500s.

Microsoft Stock (NASDAQ:MSFT) – Valuation, multiples and how cheap this actually is

At roughly $397 per share, Microsoft Stock (NASDAQ:MSFT) trades around 24.9x trailing earnings and about 10.06x sales, far below the 24–25x price-to-sales levels commanded by other AI leaders despite running a revenue base over $305.45 billion with less volatility. EBITDA sits around $191.39 billion, ahead of AI peers that generate roughly $119.09 billion and $34.71 billion, and yet those peers enjoy much higher sales multiples while living on more cyclical demand. Operating margins have expanded from about 45.5% to roughly 47.1%, EBITDA margin is about 62.66%, only a touch under the most profitable chip names, and net profit has climbed to about $119.26 billion, up 28.58% year on year. A P/E in the mid-20s for a firm compounding revenue in the mid-teens, EBITDA close to 20% and net income near 30% with this scale is not aggressive; it is a reset from a euphoric AI phase back to a still-premium but mispriced growth compounder.

Microsoft Stock (NASDAQ:MSFT) – Earnings engine: where the 17% top-line and 21% operating growth come from

In the latest quarter Microsoft delivered revenue of roughly $81.3 billion, up 17% headline and 15% in constant currency, with operating income at about $38.28 billion, up 21%. Net income jumped 60% to $38.5 billion including the OpenAI revaluation; stripping that out leaves adjusted net profit near $30.9 billion, still 23% higher year on year, and earnings per share of $4.14 beat expectations by $0.22. Behind that print, Microsoft Cloud grew around 26%, Intelligent Cloud revenue surged 28.82%, and cloud-related lines are now the clear driver of both top line and margin expansion. The Productivity and Business Processes segment delivered about $34.1 billion of revenue, up 16% or 14% in constant currency, while More Personal Computing fell 3% to roughly $14.25 billion, confirming that the earnings machine now sits firmly in cloud and AI rather than in legacy PC or console cycles.

Microsoft Stock (NASDAQ:MSFT) – Segment mix: Intelligent Cloud, Productivity and the drag from Personal Computing

The Intelligent Cloud unit, which includes Azure, server products, Nuance and GitHub, is the growth backbone with 28.82% revenue expansion and a direct link to the AI infrastructure build-out, and it is the main reason net income has reached $119.26 billion with a 28.58% growth rate. Productivity and Business Processes, built around Dynamics, LinkedIn and Microsoft 365, grew 16% to $34.1 billion as Microsoft 365 Commercial revenue climbed 17%, Dynamics 365 rose 19% and consumer Microsoft 365 jumped 29%, helped by Copilot monetisation and E5 upsell. More Personal Computing, which concentrates Windows, gaming and devices, shrank 3%, with gaming revenue down around 9% and Xbox content and services off roughly 5%, while Windows OEM revenue advanced 5% due to Windows 10 end-of-support upgrades and inventory adjustments rather than structural PC demand. The mix is very clear: Microsoft Stock (NASDAQ:MSFT) is now a cloud, subscription and AI company for valuation purposes, with PCs and consoles acting as a secondary cash engine rather than the equity driver.

Microsoft Stock (NASDAQ:MSFT) – AI and cloud backlog: $625B of contracted demand, not a hope story

Commercial remaining performance obligations sit at roughly $625 billion, giving a concrete multi-year runway for cloud and AI rather than a narrative built on loose forecasts. Around 45% of that, approximately $281.3 billion, ties into OpenAI-related commitments, while the remaining 55% or about $344 billion comes from other enterprise contracts that grew 28% year on year. That backlog level signals that Azure and the broader Microsoft cloud stack are already locked in as strategic infrastructure for major customers, and it is a key justification for the current wave of heavy capex. When a company is sitting on over $600 billion of contracted work in its growth segments, the debate shifts from “is there demand” to “can it build capacity fast enough and monetise it efficiently”, and today the answer on demand is clearly yes.

Microsoft Stock (NASDAQ:MSFT) – Capex shock, ROIC at 26.09% and why the cash flow hit is misunderstood

Microsoft has moved into an unusually aggressive investment phase, with about $35 billion of capital expenditures booked just in the July–September 2025 period and total commitments of roughly $155.1 billion for uncommenced data centre leases through 2031. Those investments have pushed cloud-related gross margins down toward 67% as AI infrastructure ramps and have forced analysts to trim free cash flow estimates by around 5.2% for this year and next and over 10% for 2028, for a blended cut of roughly 7.4%. However, return on invested capital stands near 26.09% against an estimated weighted average cost of capital around 8.9%, a spread that would be enviable for any mature mega-cap and that strongly suggests these AI and cloud projects are value-accretive over the cycle. EBITDA estimates for 2026 barely moved, down around 0.7% then slightly up in 2027 and 2028 for a net 0.2% lift, while long-term trajectories imply sales growth around 16.1% annually, EBITDA near 19.3% and free cash flow about 11% despite the capex burden, which is not the profile of a business destroying capital.

Microsoft Stock (NASDAQ:MSFT) – Relative strength versus high-profile AI peers on revenue, margin and stability

On size and stability Microsoft operates in a different bracket than the names that dominate most AI headlines. Revenue is over $305.45 billion versus approximately $187.14 billion and $63.89 billion for two of the other key AI infrastructure players, yet those peers carry much higher valuation multiples despite more volatile revenue bases. EBITDA around $191.39 billion is almost double the nearest major AI rival and several times the next group down, with an EBITDA margin of 62.66% that is only slightly below the highest-margin chip provider but with far broader diversification. Microsoft’s gross and EBITDA margins have trended upward steadily, whereas some peers show sharp swings tied to GPU cycles or one-off demand spikes, and Microsoft spends more than double its closest competitor on R&D, intentionally sacrificing a few margin points today to entrench its position across software, cloud and AI. With that context, a 10.06x price-to-sales ratio is more consistent with a high-quality compounder than with the premium the market usually assigns to the leading infrastructure provider in a structural growth theme.

Microsoft Stock (NASDAQ:MSFT) – Copilot, M365 base and the real AI monetisation runway

Cloud growth is not only a function of raw compute shipments; it is also about layering high-margin software on top of that infrastructure, and Microsoft has positioned Copilot and its AI capabilities directly into Microsoft 365 and Dynamics. Commercial Microsoft 365 revenue rising 17% and consumer revenue jumping 29% show that customers are willing to pay for AI-enhanced collaboration and productivity features, especially when bundled into higher-tier E5 offerings. Dynamics 365’s 19% growth underscores the appetite for AI-infused SaaS platforms in enterprise resource planning and CRM, and that is before full-scale deployment of agentic AI, where persistent agents manage workflows, data retrieval and actions across mail, storage, ERP and third-party services under corporate identity and RBAC control. With an M365 commercial base north of 400–450 million seats, even modest per-seat AI monetisation and agent adoption generate significant incremental high-margin revenue over time, and that potential is not yet fully reflected in the current multiple.

Microsoft Stock (NASDAQ:MSFT) – Azure growth, capacity constraints and why the slowdown is not demand driven

Azure and other cloud services grew around 39% year on year, approximately one percentage point below some expectations but still ahead of internal projections thanks to efficiency gains. The key commentary from the finance team is that demand across workloads, segments and geographies exceeds available capacity, meaning growth is being capped by supply, not customer appetite. The company is pouring capital into new data centres and network build-outs precisely because existing infrastructure cannot absorb all potential AI and cloud workloads, and that is why some high-margin AI usage will be deferred rather than lost. As additional capacity comes online, there is a strong case for Azure to re-accelerate toward or above 40% growth, especially with custom silicon and optimised software stacks improving performance and economics. The market reaction treated a supply-constrained quarter as if it were a demand problem, which is a fundamental misread of the risk.

Microsoft Stock (NASDAQ:MSFT) – Custom silicon: Maia 200, Cobalt 200 and the economics of AI inference

Microsoft is not content to be a passive buyer of third-party GPUs; it is actively verticalising the stack through custom silicon like the Maia 200 AI accelerator and Cobalt 200 CPU. Maia 200, built on TSMC’s 3nm node with around 100 billion transistors, targets performance that can rival or surpass other cloud providers’ in-house AI chips, and management commentary implies potential per-dollar performance gains versus current GPU-based configurations that could reach meaningful double-digit percentages. Cobalt 200, aimed at cloud-native workloads, offers up to 50% higher performance than Microsoft’s first custom CPU generation, tightening the efficiency of general compute that underpins most Azure workloads. As inference workloads grow to dominate AI compute hours relative to training, shaving 20–30% off the unit cost of inference has a direct effect on Azure margins and pricing flexibility, allowing Microsoft to be more aggressive with AI pricing while protecting profitability and limiting dependence on external chip suppliers.

Microsoft Stock (NASDAQ:MSFT) – Quantum option value: Majorana 1 and the long-dated upside layer

Beyond classical AI infrastructure, Microsoft is developing its Majorana 1 quantum chip, aiming to scale to around one million qubits on a single chip using topological qubits controlled by voltage pulses. If this architecture succeeds, it would support industrial-scale quantum computing years sooner than timelines implied by more conservative roadmaps, opening new addressable markets in optimisation, simulation and advanced cryptography. Today that program barely factors into financial models and certainly does not drive the current share price at $397, but it sits as a leveraged call option on top of an already profitable cloud, AI and software platform. For a business already generating over $119 billion of net profit, having a credible path into quantum at scale is a strategic advantage rather than a speculative distraction.

Microsoft Stock (NASDAQ:MSFT) – Key risks: AI infrastructure strain, monetisation execution and competitive pressure

The main risks around Microsoft Stock (NASDAQ:MSFT) are operational and competitive rather than existential. AI infrastructure expansion depends on reliable energy supply, land, regulators, servers, networking gear and accelerators; any sustained bottleneck in those inputs extends the period in which Azure and AI services remain capacity-constrained, delaying revenue realisation and prolonging the free cash flow trough. Hardware has short life cycles, so if newer generations of accelerators and CPUs arrive faster than expected or materially outperform today’s Maia and Cobalt lines, Microsoft may face accelerated depreciation and replacement costs that weigh on margins. On the demand side, if Copilot, agents and AI services fail to reach meaningful paid penetration across the vast M365 and Dynamics installed base, the revenue payback on this capex wave will fall short of what the current ROIC suggests is possible. Finally, hyperscale competitors are investing aggressively in their own silicon and AI platforms, and any sustained price war in cloud and AI services could compress returns even with strong demand.

Microsoft Stock (NASDAQ:MSFT) – Buy, sell or hold at around $397 after the AI derating

Putting all the numbers together, Microsoft Stock (NASDAQ:MSFT) around $397 represents a business with roughly $305.45 billion in revenue, about $119.26 billion in net income growing nearly 30%, Intelligent Cloud and Microsoft Cloud growing between 26% and 29%, Azure near 39–40%, and a commercial AI and cloud backlog near $625 billion, with ROIC at 26.09% versus an 8.9% WACC. Free cash flow has been marked down in the near term by 5–10% because capex is front-loaded, but long-term models still imply mid-teens sales growth and high-teens EBITDA growth through 2028. The share price, however, reflects a market that is treating elevated AI capex and a capacity-capped Azure quarter as structural problems rather than as the cost of building infrastructure for locked-in demand. On that basis, and with the stock trading almost 30% below its 52-week high and at a valuation that does not fully reflect its cloud and AI dominance, the balance of evidence supports a clear Buy stance rather than a Hold or Sell.

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