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MSFT · Forward model · More Personal Computing · Bear case

What has to happen in More Personal Computing

Model as of

This page changes More Personal Computing inside the complete MSFT model. Every other vertical, corporate programme and valuation assumption stays in the selected portfolio case.

MSFT forward model
Horizon
Consolidated fair value $258.91 all other verticals held in this portfolio case
Final-quarter revenue $9.72B 8% of company revenue
Explicit segment contribution $39.15B EBITDA less segment capex, before corporate items

The build outruns the return. Microsoft spent $35.8B on property and equipment in the basis quarter, more than double a year earlier, and $115.9B across fiscal 2026 against $64.6B the year before. Free cash flow FELL 23% to $19.6B while operating cash flow ROSE 30% - the gap is the entire AI build. Gross margin has already slipped to 67.2% from 68.6% because infrastructure is a lower-margin business than software, and Intelligent Cloud's operating margin is seventeen points below Productivity's. This case runs Azure decelerating from 43% while the depreciation from what has already been bought keeps arriving, and prices Microsoft as a company whose best margins are behind it.

More Personal Computing

Basis quarter$12.85B
Final quarter$9.72B
Implied CAGR−5%
Final revenue mix8%

The leg that is shrinking. $12.9B of revenue, down 4%, at a 21.4% operating margin - Windows OEM and devices, XBOX content and services, and Search advertising. Windows OEM and devices fell 7% and XBOX fell 10% in the quarter, and the segment carried impairment charges alongside severance in the same period Microsoft reported record profit. Search advertising is the one part growing. It is 14% of revenue and 7% of operating income, and its job in this model is to stop the other two from being flattered by a company average.

Last four quarters
2025 Q3 $13.76B Reported
2025 Q4 $14.25B Reported
2026 Q1 $13.19B Reported
2026 Q2 $12.85B Estimated
Windows OEM and DevicesXBOX content and servicesSearch advertising
Sequential growth −0.5%/qtr decaying toward +0.5% -0.5% a quarter. Windows OEM and devices fell 7% and XBOX 10%; this is a slow decline, not a collapse.
More Personal Computing

Latest: $9.72B (2031Q2E)

Period Value
2024Q3 $13.18B
2024Q4 $14.65B
2025Q1 $13.37B
2025Q2 $13.45B
2025Q3 $13.76B
2025Q4 $14.25B
2026Q1 $13.19B
2026Q2 $12.85B
2026Q3E $12.60B
2026Q4E $12.36B
2027Q1E $12.14B
2027Q2E $11.94B
2027Q3E $11.75B
2027Q4E $11.57B
2028Q1E $11.40B
2028Q2E $11.24B
2028Q3E $11.09B
2028Q4E $10.94B
2029Q1E $10.80B
2029Q2E $10.66B
2029Q3E $10.53B
2029Q4E $10.41B
2030Q1E $10.29B
2030Q2E $10.17B
2030Q3E $10.05B
2030Q4E $9.94B
2031Q1E $9.83B
2031Q2E $9.72B

Assumptions & reasoning

  • The only segment shrinking, and the only one where a model that extrapolates the company average would be badly wrong. Windows OEM and devices fell 7% and XBOX content and services fell 10% in the basis quarter.
  • XBOX impairment charges appear in the same quarter's discrete items alongside severance. The operating margin of 21.4% is after them, so the basis quarter is a depressed starting point rather than a run rate.
  • Search advertising is the growing part of this segment and Microsoft reports it only in the annual product table, where it rose to $15.2B. Quarterly it is invisible inside the segment total.
  • At 14% of revenue and 7% of operating income, this line cannot change the fair value much. It is carried because Microsoft reports it and because folding it into the other two would flatter both.
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