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Microsoft’s MSFT gaming division continues to show strength, with Xbox content momentum emerging as a key growth catalyst. In the fourth quarter of fiscal 2025, Xbox content and services revenues rose 13% year over year, driven by strong first-party performance and continued expansion of Xbox Game Pass.
Game Pass, now a cornerstone of Microsoft’s recurring revenue model, generated nearly $5 billion annually and reached 500 million monthly active users as of June 2025. The company also became the top publisher on both Xbox and PlayStation, reflecting its successful multi-platform approach. Recent Game Pass additions like The Outer Worlds 2, PowerWash Simulator 2 and Football Manager 26 continue to enhance subscriber value and engagement.
On the innovation front, Microsoft is expanding its hardware and cloud presence. The company introduced Xbox Cloud Gaming (Beta) in vehicles through partnerships with LG and launched the ROG Xbox Ally handheld series with Asus in October 2025. The lineup includes the standard ROG Xbox Ally powered by an AMD Ryzen Z2 A processor and the more advanced Ally X with a Ryzen AI Z2 Extreme processor, reflecting Microsoft’s push to unify its Xbox and Windows ecosystems.
According to Zacks' model estimates, Microsoft’s gaming division is expected to grow 2.1% in fiscal 2026 and accelerate 14.9% in 2027, reflecting steady long-term momentum. With expanding hardware, robust content and a growing subscription base, Xbox remains central to Microsoft’s next phase of gaming-driven revenue growth.
Take-Two Interactive TTWO stands out as a premier game publisher known for blockbuster franchises like Grand Theft Auto, Red Dead Redemption and NBA 2K. TTWO thrives on premium content, creative freedom and strong live-service revenues from in-game spending. With GTA VI on the horizon, TTWO’s strategy of focusing on high-impact IPs and strategic acquisitions reinforces its competitive edge across consoles, PC and mobile platforms.
Sony Group Corp. SONY remains Microsoft’s top gaming rival through its PlayStation ecosystem. SONY dominates with premium consoles, acclaimed exclusives like God of War and Spider-Man, and 123 million monthly users. Its tiered PS Plus service combines streaming, classics and new titles. Focused on hardware excellence and first-party content, SONY strengthens its market leadership and brand loyalty across the global gaming landscape.
MSFT shares have gained 23.4% in the year-to-date period, outperforming the Zacks Computer – Software industry’s growth of 20.1%, though slightly lagging behind the broader Zacks Computer and Technology sector’s growth of 23.8%.
From a valuation standpoint, Microsoft trades at a premium with a forward 12-month Price/Sales ratio of 11.54X compared with the industry’s 8.54X. MSFT has a Value Score of D.
The Zacks Consensus Estimate for MSFT’s fiscal 2026 earnings is pegged at $15.40 per share, up by a cent over the past 30 days. The estimate indicates 12.90% year-over-year growth.
Microsoft currently carries a Zacks Rank #2 (Buy). 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).
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