MSFT US - PT $470 - Accumulate $386-$430, STP <$386 - Software In The Ascendant
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Analysis by Alex King for Cestrian Capital Research, Inc.
Summary
Microsoft just printed a perfectly good quarter. Backlog (RPO) grew by +58% YoY and now represents more than 2x TTM revenue. Recognized revenue growth slowed a touch but still sits at 18% on a TTM basis, on a TTM revenue number of $332bn. Unlevered pretax FCF margins fell to 26% but that, of course, puts MSFT a lot closer to Apple than it does to Google, so no-one is throwing any toys out of the stroller on that point. Valuation is a touch pricey on cashflow multiples but nothing out of the ordinary. The stock moved up hard on the print, which tells us mainly that the rotation of capital into the software sector continues. Had a hardware company delivered that quarter today, the stock would have dumped. Software company so stock up. As always - the primary factor we all need to understand is sector rotation. (You can automate it by the way - here).
We rate the stock at Accumulate between $386-430 with a price target of $470; we assume a stop below $386.
Financial Fundamentals
Valuation Multiples
Stock Chart
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Disclosure: The author holds a long position in MSFT.
Cestrian Capital Research, Inc - 29 July 2026.