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Microsoft Corp. (MSFT) witnessed significant growth in both its free cash flow (FCF) and operating cash flow (OCF) margins during the June quarter. This has led to analysts increasing their price targets. The solid cash flow generation and slowdown in capital expenditure (capex) growth establish a trend toward sustained stock gain for the company.
Microsoft's operating cash flow (OCF) at the end of fiscal Q4, June 30, 2025, was 42.647 billion, a 14.7 percent growth over the previous year. In Q4, the OCF margin was 55.79%, which is higher than the 52.8% margin in Fiscal Q3 and also significantly up compared to the 32% margin in Q2. This increase in OCF margin points out that Microsoft has managed to draw additional cash out of its operations, a manifestation of operational efficiency.
The company’s revenue growth forecast also remains strong. Analysts believe that Microsoft has the potential to grow revenue by 14.3% in the 2026 financial year, amounting to $322.04 billion.
With this revenue forecast, Microsoft has a FY 2026 probability of generating an OCF of $170.68 billion based on an OCF margin that can be set at 53%. Though this projection is slightly lower than the 55.79% OCF margin in Q4 2025, it is an actual improvement compared to the 48.3% margin in FY 2025.
Also Read: Is Microsoft Stock a Good Buy?
The capital expenditures (capex) increase at Microsoft has slowed considerably, and this is why analysts think the free cash flow (FCF) will rise in the future. The capex could only manage to rise by 2.0% reaching 17.079 billion, compared to the 45% capex that was registered during FY 2025 in the fiscal Q4.
In the fiscal year 2026, the company is likely to slow down its capex development even more, and analysts believe that this growth will amount to 10% reaching a total capex of $71 billion.
This slowing of the capex growth will enable Microsoft to make more free cash flow on its operations. Microsoft is projected to have a free cash flow of $99.68 billion in FY 2026, with a 39 percent growth rate over the previous year, given an OCF of $170.68 billion and a capex of $71 billion.
The increased FCF is coupled with a rising FCF margin of 31% (up by 25.4% in FY 2025), reinforcing the financial outlook of the company and justifying the stock valuation to increase.
Analysts have increased their price target on Microsoft to $668.21 per share based on its decent cash flow performance and better outlook. This is a 28% increase over the current share price of $526.8. The updated benchmark incorporates a boost in Microsoft's FCF, which can be attributed to improved operating margins and manageable capex taper.
Investors may want to pursue strategies like shorting out-of-the-money (OTM) puts to seek opportunities in the potential upside. To illustrate, there is a $505 strike put option that expires on September 12 and has a premium of about 1.03 percent. This would be a chance to acquire Microsoft shares at a lower price and enjoy the possible upside when the value matches the target price of $668.21.
Also Read: Is it a Good Time to Buy Microsoft Stock?
