Nasdaq-100® Inside the Index: Microsoft Corporation (MSFT)
Key Figures
- $331.8B revenue (FY2026)
- $90.0B revenue (Q4 FY26)
- 46.8% OP margin (FY26)
- $83.3B free cash flow (FY26)
- ~24.9× forward P/E (9/24/26)
VOL 1 • ISSUE 27 • OCTOBER 2026
Microsoft makes Windows, Teams and Xbox. Its Azure cloud brought in more than $100 billion in fiscal 2026.
MSFT • Technology • Index Constituent
This Issue — MSFT
Microsoft, a current Nasdaq-100® constituent at ~5.63% index weight, sells software, cloud computing and consumer products to businesses and households. Its work software includes Microsoft 365, Teams and LinkedIn; its cloud business runs Azure; and its consumer side sells Windows, Xbox and Bing search. The company is headquartered in Redmond, Washington, and its fiscal year ends June 30.
Business Model & Revenue Drivers
Work Software, Cloud and Windows
Microsoft reports three businesses. Work software (which Microsoft reports as Productivity and Business Processes) includes Microsoft 365, Teams, LinkedIn and Dynamics, and brought in $120.8B in FY2025. The cloud business (Intelligent Cloud), home to Azure and server software, brought in $106.3B, and Windows, Xbox and Bing (More Personal Computing) added $54.6B (per company filings).
Microsoft 365 is sold as subscriptions by the seat, and Azure revenue rises with how much computing customers use (per Bloomberg research). The cloud business grew 21.5% year over year in FY2025, the fastest of the three.
Two Largest Businesses by Revenue (FY2025)
- Work software: $120.8B
- Cloud: $106.3B
Competitive Moat
Data Centers, Developers and Signed Contracts
Microsoft runs Azure out of 88 data centers, 31 of them added in FY2026 (per Bloomberg research). GitHub, the code-hosting service Microsoft owns, has 225 million users, and 50 million of them use its GitHub Copilot coding assistant.
Commercial customers have signed $678B of contracts Microsoft has yet to deliver, known as remaining performance obligations (per Bloomberg research). According to company disclosures and Bloomberg research, that contracted backlog, data center network and enterprise customer base may create barriers to entry for some competitors.
GitHub Users (September 2026)
- All GitHub users: 225M
- GitHub Copilot: 50M
Operating Strengths
Three Operating Measures
- $17.95 diluted EPS (FY2026). Earnings per share rose from $9.68 in FY2023 as net income reached $133.7B (per Bloomberg research).
- 30M copilot seats (Q4 FY26). Paid Microsoft 365 Copilot seats, up from 20 million the quarter before (per company disclosures).
- +42% sales growth (FY22 TO FY25). Headcount rose 3% over the same years; Bloomberg research links part of that gap to Microsoft’s own use of AI to write code.
Growth Catalysts
More AI Models in Copilot, More Contracted Demand for Azure
Copilot now works with AI models from more than one company. Microsoft 365 Copilot, the AI assistant built into Microsoft’s work software, supports models from both OpenAI and Anthropic. A new feature called Critique has one model write a response and a second model review it (per Bloomberg research).
- Azure guidance. Management expects Azure revenue to grow about 45% in constant currency (excluding exchange-rate moves) in Q1 FY2027, after 43% in Q4 FY2026, and expects double-digit revenue and operating income growth for FY2027 (company guidance).
- Contracted AI demand. OpenAI has contracted to buy an additional $250B of Azure services over an undisclosed period, and Anthropic has committed $30B to Azure capacity (per Bloomberg research).
- AI revenue. Microsoft’s AI revenue reached a $37B annual run-rate, about 11% of total revenue and up 123% year over year (per Bloomberg research).
Historical Context
Revenue From FY2023 to FY2026
~16% ANNUAL REVENUE GROWTH, FY2023 TO FY2026
- FY2023: $211.9B
- FY2024: $245.1B (+16% YOY)
- FY2025: $281.7B
- FY2026: $331.8B (+18% YOY)
SOURCE: MICROSOFT FORM 10-K FILINGS, MICROSOFT INVESTOR RELATIONS. FISCAL YEARS END JUNE 30, PER BLOOMBERG RESEARCH
Revenue rose from $211.9B in FY2023 to $331.8B in FY2026, about 16% a year (per Bloomberg research). FY2026 brought the largest step, up about 18%, as Azure revenue grew 41%. Over the same years, spending on data centers and equipment roughly quadrupled, and operating margin widened by five points.
OPERATING MARGIN (FY2023 TO FY2026)
41.8% → 46.8% | +5.0 pts
CAPITAL SPENDING (FY2023 TO FY2026)
$28.1B → $115.9B | 4.1×
GROSS MARGIN (FY2024 TO FY2026)
69.8% → 67.9% | −1.9 pts
Microsoft’s Copilot can have one AI model write an answer and another check it. It runs models from both OpenAI and Anthropic.
Valuation & Investment Thesis
The Multiple and the Cash Flow
At $493.78 on 9/24/2026, the shares trade at approximately 24.9× forward earnings, with a 0.74% dividend yield (per Bloomberg research). Free cash flow was $83.3B in FY2026.
Bloomberg consensus estimates put FY2027 revenue at about $392.3B. At approximately 24.9× forward earnings, investors may consider whether growth in Azure and Copilot supports current valuation levels.
Key Risks
What Could Change the Story
- Spending payback. Capital spending guidance of about $190B for calendar 2026 raises questions about the return on that investment (per Bloomberg research).
- Customer concentration. OpenAI and Anthropic together account for about 25% of Azure revenue and more than 70% of AI revenue (per Bloomberg research).
- Competition. Google Cloud and Amazon Web Services are improving their AI computing services with custom chips (per Bloomberg research).
- Regulatory review. The UK Competition and Markets Authority, Britain’s competition regulator, is examining Microsoft 365 pricing following the addition of Copilot (per Bloomberg research).
- Copilot pricing. Microsoft is reportedly offering large corporate customers discounts of 30% to 50% on Copilot subscriptions (per Bloomberg research).
What This Means For You
The Index Angle, in Plain Terms
In Your Index Fund — If you hold a fund that tracks the Nasdaq-100 Index®, you already own this.
- Index composition follows transparent eligibility criteria, and MSFT is a current constituent at ~5.63% index weight: about $5.63 of every $100 tracking the Nasdaq-100 sits in Microsoft.
- ChatGPT, OpenAI’s chatbot, runs on Microsoft’s Azure cloud (per Bloomberg research).
- A Teams call at work runs on Microsoft 365, part of Microsoft’s largest business by FY2025 revenue.
Decoding the Jargon
Two terms doing the heavy lifting in this issue.
- Run-rate. Today’s revenue pace stretched over a full year; Microsoft’s AI run-rate is $37B
- Constant currency. Growth measured as if exchange rates hadn’t moved; Azure grew 43% on that basis in Q4 FY2026
Bottom Line
Inside the Nasdaq-100®, Microsoft sells work software. Azure also runs AI for OpenAI and Anthropic.
About the Series
The Nasdaq-100® is a globally recognized index of 100 of the most innovative large cap companies listed on the Nasdaq Stock Market®. The Inside the Index series profiles one constituent each issue, from software to soft drinks and computer chips to potato chips, exploring what makes each business distinctive and the metrics investors should know.
Sources
NASDAQ GLOBAL INDEXES. MICROSOFT CORPORATION SEC FILINGS VIA SEC EDGAR: FORM 10-K ANNUAL REPORTS, FORM 10-Q QUARTERLY REPORTS; MICROSOFT INVESTOR RELATIONS. SEGMENT REVENUE, Q4 FY2026 RESULTS, COPILOT SEAT COUNTS, AZURE AND FY2027 GUIDANCE AND CAPITAL SPENDING GUIDANCE PER MICROSOFT COMPANY FILINGS AND DISCLOSURES. HISTORICAL FINANCIALS, MARGINS, CASH FLOW, CAPITAL SPENDING, VALUATION MULTIPLES, FORWARD ESTIMATES, DATA CENTER COUNTS, AI REVENUE RUN-RATE, AZURE CUSTOMER COMMITMENTS, GITHUB USERS, COPILOT MODEL SUPPORT AND PRICING, HEADCOUNT AND RISK FACTORS PER BLOOMBERG RESEARCH AND BLOOMBERG CONSENSUS ESTIMATES; UK COMPETITION AND MARKETS AUTHORITY INVESTIGATION AS CITED IN BLOOMBERG RESEARCH. MICROSOFT’S FISCAL YEAR ENDS JUNE 30. DATA AS OF 9/24/2026.
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