How Microsoft Stock Rises 2x To $1,000

Core Insights - Microsoft generated $71.6 billion in free cash flow in fiscal 2025, approximately 1.8% of its $3.9 trillion market capitalization, translating to $9.60 per share for a stock price of $520 [3][4] - The company reported a record net income of $102 billion, achieving a net margin of around 36%, marking the first time it surpassed the $100 billion profit threshold [4] - Microsoft returned $37 billion to shareholders through dividends and buybacks in the last twelve months, showcasing its commitment to shareholder value [4] Financial Performance - Microsoft achieved $281.7 billion in revenue for fiscal 2025, with operating income rising in the mid to high teens [6][9] - The Intelligent Cloud segment, particularly Azure, was a key growth driver, surpassing $75 billion in annual revenue with a year-over-year growth of 34% [6][13] - The company's operating cash flow margin stood at 48.3%, resulting in $136 billion from total revenue [3] Growth Drivers - Microsoft is expected to invest approximately $70 billion in AI infrastructure during fiscal 2026, enhancing its competitive position in the market [13][15] - The AI services are projected to contribute significantly to revenue growth, with sustained annual growth of 17% anticipated [9] - The Productivity and Business Processes segment generated $116.5 billion in fiscal 2025, reflecting a 16% increase, driven by higher pricing and AI-enhanced features [13] Valuation and Future Outlook - Current trading at 38 times trailing earnings is justified by Microsoft's robust growth and cash flow generation, with expectations of continued premium valuation [10] - If Microsoft maintains its current multiple, the implied share price could exceed $1,000, indicating potential for significant growth [14] - The anticipated expansion of operating margins to 50% as AI services scale could lead to $225 billion in operating income by 2028 [9][10]