Microsoft MSFT is drawing momentum from sustained demand for its Microsoft 365 (formerly Office 365) Commercial cloud, which the company flagged as a standout in its fiscal third-quarter results for the period ended March 31, 2026. M365 Commercial cloud revenues rose 19% (15% in constant currency), ahead of the company's own expectations, helping lift Productivity and Business Processes segment revenues to $35 billion, up 17%. Growth was led by higher average revenue per user, with both E5 and Microsoft 365 Copilot cited as the primary drivers.
The Copilot ramp is central to the story. Paid Copilot seats surpassed 20 million, seat additions climbed 250% year over year—the fastest pace since launch—and the count of customers with more than 50,000 seats quadrupled. Efficiency gains in M365 Commercial cloud also supported a modest rise in segment gross margin, even as AI investment and Copilot usage weighed on costs. Recent product moves reinforce the push, including general availability of the Microsoft 365 E7 "Frontier Suite" and Agent 365 on May 1, 2026, alongside a commercial pricing update slated for July 1, 2026.
The picture is not uniformly upbeat. M365 Commercial products revenues grew just 1% (down 3% in constant currency) as Office 2024 transactional purchasing continued to normalize, while paid commercial seat growth of 6% leaned toward small-business and frontline categories. Bookings, meanwhile, reflected a shift as customers move from per-seat licensing toward a seats-plus-consumption model; commercial bookings rose 7% excluding OpenAI on consistent annuity execution, while Dynamics 365 specifically saw weaker renewals tied to that transition.
Looking ahead, Microsoft guided fiscal fourth-quarter M365 Commercial cloud growth to 15-16% in constant currency on an adjusted basis (13-14% in constant currency on a reported basis), with sequentially higher net paid seat adds expected to sustain ARPU gains. Overall Productivity and Business Processes revenues are projected at $37-$37.3 billion, implying continued—if moderating—commercial cloud-led expansion.
How Rivals Stack Up
Alphabet GOOGL and Salesforce CRM are advancing comparable commercial-cloud and agentic offerings. Alphabet's Google Workspace folded Gemini directly into its core Business and Enterprise plans, and Alphabet reported more than 8 million Gemini Enterprise paid seats across roughly 2,800 companies, with paid monthly active users up 40% sequentially in the March 2026 quarter. Salesforce, meanwhile, is scaling Agentforce through consumption-based Flex Credits alongside per-user Agentforce add-ons, mirroring the same seats-plus-consumption shift. Salesforce positions Agentforce for case deflection and workflow automation. Both Alphabet and Salesforce illustrate how productivity and enterprise-software peers are blending bundled AI with usage-based monetization to capture demand.
MSFT’s Share Price Performance, Valuation & Estimates
MSFT shares have lost 15.3% in the past six-month period, underperforming the Zacks Computer – Software industry’s decline of 15.3% and the Zacks Computer and Technology sector's growth of 18.6%.
MSFT’s 6-Month Price Performance
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From a valuation standpoint, MSFT stock is currently trading at a forward 12-month Price/Sales ratio of 8.14X compared with the industry’s 6.92X. MSFT has a Value Score of D.
MSFT’s Valuation
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The Zacks Consensus Estimate for MSFT’s fiscal 2026 earnings is pegged at $17.33 per share. The estimate indicates 27.05% year-over-year growth.
Microsoft Corporation Price and Consensus
Microsoft Corporation price-consensus-chart | Microsoft Corporation Quote
Microsoft currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).