MSFT: FQ4 Preview — Needle to Thread Given Shifting Investor Focus

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MSFT: FQ4 Preview — Needle to Thread Given Shifting Investor Focus

Microsoft Corporation Equity Research

Investment Thesis, Valuation and Risks

Microsoft Corporation (MSFT)

Investment Thesis

We still see a bright future ahead for Microsoft, driven by continued growth prospects in huge categories of IT spend, ability to further

monetize strong positioning in multiple end markets, and a financial profile that continues to exhibit durable margin expansion. We

acknowledge shares are trading near historical highs, but think this is justified given its early AI lead and strong incumbent position in a

tight market, esp. favorable in the current environment. We rate shares Overweight.

Target Price Valuation for MSFT

Our $625 PT is derived from 28.5x P/E on our Fwd NTM estimates, warranted given the unprecedented scale + durability of this biz and

series of favorable LT tailwinds still ahead. The current AI-focused capex build cycle continues to affect FCF multiples; therefore, we remain

focused on P/E multiples in the interim.

Risks to Our Price Target and Rating for MSFT

Downside risks to our price target include: (1) Competition—Increasing competition, particularly from large tech vendors such as Google,

Facebook, Amazon, among others; (2) Increasing regulatory scrutiny—Technology companies have increasingly seen scrutiny from

regulatory agencies and governments globally over the past several years, specifically, antitrust concerns; (3) Cybersecurity Risks; and (4)

Margin compression—from Azure/OpenAI investments.

Companies Mentioned in Report

Company Name Ticker Last Price

(07/14/26)

Microsoft Corporation MSFT $384.93

Source: Wells Fargo Securities LLC Estimates, FactSet

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