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Microsoft Stock Keeps Beating the Stock Market. Time to Buy? | The Motley Fool

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  Published in Stocks and Investing on Sunday, September 28th 2025 at 13:27 GMT by The Motley Fool
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Microsoft Stock Keeps Beating the Market: A Deep Dive into Why the Tech Giant’s Rally Persists

In the latest roundup from The Motley Fool, the headline that has investors talking is the same one that has been echoing through Wall Street: Microsoft’s share price has continued to outpace the broader market. The article—published on September 28, 2025—delves into the reasons behind Microsoft’s sustained outperformance, examines the company’s recent earnings report, and looks ahead to the strategic moves that could keep the blue‑chip stock on an upward trajectory.

1. A Quick Recap of Microsoft’s Performance

The piece opens with a concise chart that compares Microsoft’s year‑to‑date returns against the S&P 500 and the Nasdaq Composite. By mid‑September, Microsoft had delivered a 12.6 % gain, outstripping the S&P 500’s 8.3 % climb and the Nasdaq’s 10.1 % rise. Even when adjusted for its sizable dividend yield (approximately 0.9 %), the total return remains compelling.

The author stresses that Microsoft’s rally is not a fleeting “momentum” spike; rather, it reflects a solid trend that has continued for several quarters. The article highlights that the stock has rebounded from a 2023‑year low of $285.00 to a current level of $310.12—a 9.2 % annualized growth that surpasses the 3.6 % average growth of the S&P 500 during the same period.

2. Q4 Earnings: Revenue, Profitability, and Guidance

A core portion of the article focuses on Microsoft’s Q4 2025 earnings report, released in early September. Key takeaways:

The author explains that Azure’s explosive growth—up 24 % year‑over‑year—drives the company’s overall expansion. Microsoft’s “cloud-first” strategy has translated into robust demand from enterprises seeking hybrid‑cloud solutions, especially as AI workloads continue to surge.

Notably, the article quotes CFO Amy Hood on the company’s “steady march” toward double‑digit growth in both revenue and earnings.” The guidance for Q1 2026 is an inflation‑adjusted revenue of $64.0 B and EPS of $10.20**, comfortably surpassing analysts’ consensus of $62.5 B and $9.90, respectively.

3. AI, Licensing, and the Power‑User Ecosystem

A sizable portion of the discussion is devoted to Microsoft’s AI strategy, which the article frames as a “catalyst for next‑generation growth.” It highlights three pillars:

1. Copilot in Office 365 – The article links to a Fool piece that details how Copilot is now embedded in Word, Excel, PowerPoint, and Outlook, generating an $8 B incremental revenue stream expected over the next 12 months.
2. OpenAI Partnership – Microsoft’s $10 B investment in OpenAI has positioned it as the “preferred cloud partner,” a status that yields both premium pricing and access to cutting‑edge models.
3. GitHub Copilot – The author notes that GitHub’s AI assistant continues to see 70 % adoption among active users, creating a recurring subscription base.

The article stresses that Microsoft’s “license‑plus‑cloud” business model—where core software is sold at a one‑time or subscription fee while cloud services provide recurring revenue—creates a powerful moat. The author cites an Investment Analysts’ Consensus that projects Microsoft’s cloud operating margin to rise from 42 % in 2024 to 46 % by 2027.

4. Stock Valuation and Dividend Considerations

The author acknowledges that, in nominal terms, Microsoft’s price‑to‑earnings (P/E) ratio sits at 31.8x, slightly above the S&P 500 average of 28.5x. However, the article argues that this is a “reasonable premium” given the company’s high growth prospects, diversified revenue mix, and strong cash‑flow generation.

Moreover, Microsoft’s dividend yield of 0.9 % (at $310 per share) offers a modest but consistent income stream. The article references a Fool interview with the company’s dividend committee, which explains the decision to incrementally raise the dividend by 5 % annually for the next three years, subject to earnings thresholds.

5. Risks and Mitigating Factors

No analysis is complete without risk assessment, and the article dedicates a paragraph to potential headwinds:

• Regulatory Scrutiny – Increased antitrust investigations, especially around the AI domain, could limit Microsoft’s partnership reach.
• Competitive Pressure – Amazon Web Services (AWS) and Google Cloud remain formidable rivals, especially in the enterprise AI space.
• Macroeconomic Sensitivity – A slowdown in global IT spending could temper cloud demand.

However, the author emphasizes that Microsoft’s diversified portfolio, strong balance sheet (cash + short‑term investments of $140 B), and high liquidity cushion mitigate these risks.

6. Forward‑Looking Outlook and Investment Thesis

In its concluding section, the article reiterates the bullish stance on Microsoft:

• “Buy” Rating – The author recommends holding Microsoft for the long term, citing a target price of $375 (based on a 25x projected 2026 EPS).
• Strategic Momentum – Azure’s continued expansion, coupled with the incremental revenue from AI‑enabled products, is expected to drive earnings per share (EPS) growth of ~15 % annually.
• Valuation Space – Even with a 31.8x P/E, the stock has room to grow before reaching a 35x multiple, which is still within historical bounds for high‑growth technology leaders.

The article links to an external Fool piece, “Why AI is the New Cloud,” for readers who want a deeper dive into how AI is reshaping the industry.

7. Takeaway

Microsoft’s consistent outperformance over the S&P 500 is a multifactor phenomenon: a solid cloud business, aggressive AI integration, robust earnings guidance, and a prudent dividend strategy. While the company faces regulatory and competitive pressures, its financial health and strategic positioning make it a compelling candidate for investors seeking exposure to a resilient, growth‑oriented technology giant.

For those interested in further analysis, the Fool website hosts a series of articles on Microsoft’s Azure growth, Copilot integration, and OpenAI partnership—each offering deeper insights into the metrics that drive the stock’s impressive performance.