Microsoft has had a rough stretch in the market in recent months. Shares of the Dow 30 stock have pulled back sharply over the past year, weighed down by investor worries over capital spending and whether the artificial intelligence boom will actually translate into lasting profit growth.
Valued at a market cap of $2.84 trillion, Microsoft (MSFT) stock is down 31% from all-time highs. But Wall Street isn’t flinching.
Thirty-three out of 36 analysts rate the blue-chip dividend stock a “Buy”. The average 12-month MSFT stock price target is $583.6, a 57% premium to the current price. That’s a striking gap.
And understanding why analysts remain so bullish, even as the stock struggles, requires a closer look at what Microsoft is building.
Microsoft’s AI moat expands
Most people know Microsoft as the company behind Windows and Office. But that’s an increasingly small part of the story.
Over the past two years, Microsoft has quietly built one of the largest AI businesses on the planet.
In its fiscal second quarter of 2026 (ended in December), the company reported that its Microsoft Cloud, the umbrella that covers Azure, Microsoft 365, and related services, generated$51.5 billion in revenue. That’s up 26% from the same period a year ago.
Azure, the company’s cloud computing platform, grew 39% year-over-year.
Microsoft Chairman and Chief Executive Officer Satya Nadella told investors:
He used the Morgan Stanley Technology, Media & Telecom Conference in March to explain how artificial intelligence is reshaping the company from the ground up: from cloud infrastructure to productivity software to coding tools.
That’s the crux of the bull case. If Nadella is right, Microsoft’s revenue could grow meaningfully faster than the market expects.
Microsoft’s growing dividend
For dividend investors, Microsoft remains one of the most reliable names in the market. According to data from Fiscal.ai, MSFT has raised its annualized dividend from $0.36 in 2006 to $3.64 in 2026. Today, it offers shareholders a yield of roughly 1%.
The tech behemoth is forecast to improve its free cash flow from $70.76 billion in fiscal 2026 to $165 billion in fiscal 2030.
More on dividend stocks:
- How much to invest in Coca-Cola for $1,000 annual dividends in 2026
- 109-year-old energy giant paying $4 billion in dividends as oil spikes
- This Dow 30 dividend stock is up 100% in the past year
With an annual dividend expense of $27 billion, Microsoft can easily double this payout through 2030, while investing heavily in AI.
Key dividend metrics for MSFT stock:
- Dividend per share (fiscal 2025 actual): $3.32
- Dividend per share (fiscal 2026 estimate): $3.52
- Dividend per share (fiscal 2028 estimate): $4.24
- Dividend growth rate (5-year): Roughly 10% annually
- Dividend yield: Approximately 1% at current prices
- Payout ratio: Well below 40% of FCF
- Consecutive years of dividend growth: More than 20 years
The payout ratio is what makes Microsoft’s dividend so attractive to long-term investors. The company generates far more earnings and free cash flow than it needs to cover the dividend.
That leaves plenty of room for future increases, and Microsoft has consistently raised it every year.
Copilot momentum is key
One metric stands out above all others right now: Microsoft 365 Copilot seat growth.
- The company ended the December quarter with 15 million paid Copilot seats. That number was up more than 160% year over year.
- Daily active users of the Copilot app grew nearly three times YoY. The number of large enterprise customers —those with more than 35,000 seats—tripled.
- Companies like Publicis bought Copilot licenses for nearly all 95,000 of its employees in a single deal.
This matters for investors because Copilot seats carry higher revenue per user than a standard Microsoft 365 subscription.
picture alliance/ Getty Images
More Copilot adoption means higher average revenue per user (ARPU), which flows directly into margins over time.
Analysts expect that dynamic to play out clearly in earnings estimates. Revenue is projected to grow from $327.84 billion in fiscal 2026 to $510 billion by fiscal 2029, according to TIKR data.
Normalized earnings per share (EPS) are forecast to jump from $16.73 this fiscal year to $27.32 by fiscal 2029, a 63% increase in just three years.
CapEx could impact dividend growth
There’s a legitimate reason the tech stock has struggled in 2026. Microsoft spent $37.5 billion on capital expenditures in a single quarter. Investors are asking a fair question: Will all that spending pay off?
Between fiscal 2026 and 2030, the total capex could surpass $600 billion. If recession fears materialize, Microsoft and its peers will struggle to maintain estimated near-term growth, which will eventually impact dividend hikes.
Chief Financial Officer Amy Hood addressed capex concerns directly on the earnings call. She explained that much of the GPU spending is already contracted for the hardware’s full useful life, meaning the revenue tied to that investment is largely locked in.
“Much of that risk isn’t there,” Hood told analysts, “because they’re already sold for the entirety of their useful life.”
Nadella added that software gives Microsoft unique tools to manage return on investment—including continuously optimizing older hardware, diversifying demand across first-party and third-party customers, and using its own chips to lower costs over time.
The market is skeptical. But Wall Street’s consensus is clear: at current prices, the skepticism is more than priced in.
Related: Goldman Sachs resets Microsoft stock forecast
