Microsoft Corporation
MSFT · Software & Cloud
Sells cloud computing (Azure), workplace software (Microsoft 365), Windows, LinkedIn and gaming (Xbox, Activision Blizzard).
Model built Nov 3, 2026 · latest annual filing FY2026 · figures in USD
Assumptions
Start from
Years 1-5
Average per year
Starting: 11.0%
Operating profit as % of revenue, average
Starting: 46.2%
Capex as % of revenue, average
Starting: 29.4%
The long run
Growth fades to this by year 10, then continues forever
Starting: 3.5%
Profit earned on each dollar reinvested after year 5. Sets how much capex growth needs
Starting: 22.4%
The yearly return you require for the risk
Starting: 10.0%
Value per share
10 years of cash flows plus a value for everything after, all discounted to today.
Starting model (base)
$305
62% of this value comes from after year 10.
-40%
Arithmetic only, not a recommendation.What the price implies: buying at $507 earns about 7.6% a year if these cash flows play out, compared with the 10.0% discount rate.
Revenue and free cash flow
Last 5 years reported (SEC filings), then 10 years projected: years 1-5 from the assumptions, years 6-10 fading to the long run.
Projected free cash flow = operating profit after tax + depreciation - capex - working capital. Reported free cash flow = operating cash flow - capex, so the two are close but not identical.
Where the starting numbers come from
The years 1-5 assumptions were set by AI using the company's SEC filings, its own guidance and judgment about what is one-off. The reasoning for each line is under the i next to it. They are a starting point to react to, not a view. Compare them with what actually happened:
| Assumption | Starting (yrs 1-5 avg) | Reported (5 years to FY2026) |
|---|---|---|
| Revenue growth | 11.0% | 14.6% a year |
| Operating margin | 46.2% | 44.2% average |
| Capex % revenue | 29.4% | 20.3% average |
- Years 6-10 are calculated, not guessed: growth slides from the year-5 rate (8.0%) down to long-term growth (3.5%); margin and depreciation stay at year-5 levels; capex moves from 21.0% of revenue to 20.6%, which is depreciation plus what it takes to keep growing.
- Return on new invested capital (RONIC) 22%: what the years 1-5 assumptions themselves imply (extra after-tax operating profit by year 5 divided by the extra investment made to get there), kept between the discount rate and 100%.
- Discount rate 10.0%: cost of equity = risk-free rate 4.89% (US 10-year Treasury) + beta 1.09 x equity risk premium 5.0% = 10.3%; blended with cost of debt 5.0% after tax at 5% debt weight.
- Historical figures: SEC EDGAR annual filings (10-K). Share count and net debt from the latest filing used for the model.