At today's price, Microsoft's stock is pricing in about 20% annual free-cash-flow growth for the next ten years. Over the past five years, the company's actual FCF growth averaged just 1.9% a year.
At its current price, MSFT implies ~20% annual FCF growth for the next 10 years, discounted at 9%.
Microsoft's actual FCF growth over the past five years (FY2021→FY2026) has averaged just 1.9% a year.
Required growth vs. historical growth
Required growth from the reverse DCF below. Historical CAGRs calculated directly from 10-K filings. Analyst consensus: stockanalysis.com/stocks/msft/forecast, Aug 13, 2026 (48-analyst consensus).
Sensitivity: what if the discount rate moves?
| WACC | Required annual growth |
|---|---|
| 8% | 17.4% |
| 9% (base case — large, stable company) | 20.1% |
| 10% | 22.5% |
| 12% | 27.0% |
What would move this number
- Switching to a 3-year average FCF ($69.1B) instead of FY2026's figure raises the required growth rate slightly, to about 21.0% — FY2026's FCF actually came in below that 3-year average.
- Swapping the comparison metric from FCF to operating income or revenue (17.3% and 14.6% five-year CAGRs, respectively) narrows the gap to the market's 20.1% ask substantially. FCF looks unusually weak specifically because AI data-center capex nearly tripled from FY2024 to FY2026, not because underlying profitability deteriorated.
- A 12% discount rate would push the required growth rate up to 27.0%.
Show your work
Five inputs, sources, model assumptions, and the calculation
- Share price$495.40 — stockanalysis.com, Aug 14, 2026 close
- Diluted shares outstanding7.445B — 10-Q Q3 FY2026, 3-month diluted weighted average
- Free cash flow (FY2026)$61.75B (operating cash flow $182.9B − capex $121.1B)
- Net debt$40.26B debt − $78.27B cash & securities = −$38.01B (net cash), per 10-Q Q3 FY2026 (Mar 31, 2026)
- Discount rate (WACC)9% base case (8% / 10% / 12% tested)
Model: free cash flow is assumed to grow at a constant annual rate g for 10 years, then at a 2.5% terminal rate thereafter. We solve by bisection for the value of g that makes the present value of those cash flows equal today's enterprise value (market cap + net debt).
EV = Σ(t=1..10) FCF₀×(1+g)ᵗ/(1+WACC)ᵗ + terminal value, solved for g by bisection.
The fine print
- Change the discount rate, the projection window, or the terminal growth rate, and the answer moves.
- A reverse DCF shows what the market currently expects — it does not say what the stock is "worth."
- Whether 20% annual FCF growth is realistic depends heavily on whether AI/Azure capex starts converting to profit on the timeline the market is assuming.
- Any investment decision, and its outcome, is your own responsibility.
Frequently asked questions
What growth rate does MSFT's stock price assume?
At today's price, Microsoft's stock is pricing in about 20% annual free-cash-flow growth for the next ten years, discounted at the model's standard rate.
How does that compare to Microsoft's actual growth?
Over the past five years, Microsoft's actual free-cash-flow growth averaged just 1.9% a year — far below the ~20% the current price requires, a large gap between what's priced in and recent history.
What share price was used for this analysis?
This analysis used $495.40, Microsoft's closing price on Aug 14, 2026, as of Aug 16, 2026.