Microsoft MSFT is betting on a busy fall gaming slate to revive its Xbox business. Gears of War: E-Day launched on Oct. 6 for Game Pass Ultimate and PC Game Pass subscribers, while Activision's Call of Duty: Modern Warfare 4 arrives on Oct. 23 across Xbox Series X|S, PC, Steam, Battle.net, PlayStation 5 and Nintendo Switch 2. Unlike earlier releases, Modern Warfare 4 will not be on Game Pass at launch, a shift that favors full-priced sales over subscription bundling. On Oct. 8, Microsoft also created XP, a new Xbox division focused on extending franchises beyond games, and appointed a new chief executive for Mojang and Minecraft .
However, guidance points to a gradual recovery. For the first quarter of fiscal 2027, Microsoft expects Xbox content and services revenues to decline in the mid-single digits, with hardware revenues also falling year over year. More Personal Computing revenues are projected to be between $12.2 billion and $12.7 billion. Management still expects Xbox to return to growth in fiscal 2027 as it resets its content portfolio, platform and operations.
Activision is already supporting profitability. In fourth-quarter fiscal 2026, More Personal Computing gross margin percentage expanded on lower amortization from the Activision acquisition. Yet Xbox revenues fell 10% year over year, as content and services declined 10% against a strong first-party comparable and hardware dropped 13%. Segment operating expenses rose 8%, partly reflecting Xbox impairment charges.
For fiscal 2026, Xbox revenues declined $1.7 billion, or 7%. Content and services slipped 5%, partly offset by Game Pass growth, while hardware fell 29% on lower console volumes.
The October releases and Call of Duty 's premium launch model could support the anticipated second-half rebound in gaming. However, near-term revenues decline, ongoing restructuring costs and Xbox's roughly 5.5% share of Microsoft's $90 billion in fourth-quarter revenues suggest gaming alone is unlikely to be a major catalyst for the stock.
Microsoft’s Gaming Pipeline Versus Take-Two and Roblox
Listed U.S. rivals show similarly uneven near-term gaming trends. Take-Two Interactive TTWO reported first-quarter fiscal 2027 net bookings down 3% to $1.39 billion. Yet Take-Two reiterated fiscal 2027 net bookings guidance of $8-$8.2 billion on the Nov. 19 launch of Grand Theft Auto VI , making Take-Two more dependent on one blockbuster than Microsoft. Roblox RBLX grew second-quarter 2026 bookings 8% to $1.6 billion and daily active users 10% to 123 million. However, Roblox expects third-quarter bookings to decline 14-18%, and Roblox has withheld revised full-year guidance amid softer per-user monetization, underscoring how pipeline timing is shaping sentiment across the sector.
MSFT’s Share Price Performance, Valuation & Estimates
MSFT shares have gained 10.4% in the year-to-date (YTD) period compared with the Zacks Computer – Software industry’s 0.1% return. The Zacks Computer and Technology sector has appreciated 19.3% in the same time frame.
MSFT’s YTD Price Performance
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From a valuation standpoint, MSFT stock appears overvalued, trading at a trailing 12-month price/earnings ratio of 30.89X, higher than the industry’s 28.53X. MSFT has a Value Score of D.
MSFT’s Valuation
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The Zacks Consensus Estimate for MSFT’s fiscal 2027 earnings is pegged at $19.65 per share. The estimate indicates 9.47% year-over-year growth.
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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).