Can Microsoft Sustain Gaming Momentum With AI and New Devices?

Microsoft’s MSFT gaming business is showing impressive growth so far, driven by strong gaming content, more AI integration and new hardware. In the third quarter of fiscal 2025, gaming revenues (8.2% of total revenues) increased 5% year over year, while Xbox content and services revenues rose 8%. Microsoft was the top publisher for pre-orders and pre-installs on both the Xbox and PlayStation Store.

PC Game Pass revenues jumped more than 45% from last year and Xbox Play Anywhere now gives players access to over 1,000 games on both console and PC. Cloud gaming also set a new record, with more than 150 million hours played in the quarter. Microsoft expanded its reach further by bringing cloud gaming to LG TVs. Microsoft is adding AI to Xbox. The new Copilot for Gaming helps players with in-game support and tips, and the Muse model can create gameplay in real time. 

Meanwhile, Microsoft announced that it will launch two Xbox handheld devices in partnership with Asus. The ROG Xbox Ally is built for everyday gamers at a good value, while the ROG Xbox Ally X is designed for those who want more power. Both devices will be available in select markets during the 2025 holiday season, with more markets to follow.

With strong growth in cloud gaming, new AI features and upcoming handhelds, Microsoft is expanding its gaming reach across platforms. It is to be seen if this momentum can hold up as competition grows for Microsoft.

MSFT Faces Stiff Competition From Sony and Nintendo

Microsoft competes in the gaming industry with major players like Sony SONY and Nintendo NTDOY. 

Sony’s PlayStation platform continues to lead in exclusive titles and console sales. Sony also has strong engagement across its PlayStation 5 ecosystem. Nintendo, meanwhile, maintains its dominance in family-friendly and portable gaming through the success of the Nintendo Switch.

Both companies remain key rivals in content, hardware and user engagement, pressuring Microsoft to innovate across cloud gaming, Game Pass and new hardware.

MSFT’s Share Price Performance, Valuation and Estimates

MSFT shares have gained 11.7% in the year-to-date (YTD) period, outperforming the Zacks Computer – Software industry and the Zacks Computer and Technology sector’s growth of 9.2% and 2.4%, respectively. 

MSFT’s YTD Price Performance

From a valuation standpoint, MSFT stock is currently trading at a forward 12-month Price/Sales ratio of 11.24X compared with the industry’s 9.30X. MSFT has a Value Score of D.

MSFT Valuation

The Zacks Consensus Estimate for fourth-quarter fiscal 2025 earnings is pegged at $3.35 per share, which has remained steady over the past 30 days, indicating 13.56% year-over-year growth.

Microsoft Corporation Price and Consensus

Microsoft Corporation price-consensus-chart | Microsoft Corporation Quote

The consensus mark for fiscal 2025 earnings is pegged at $13.33 per share, which has been revised upward by 3 cents over the past 30 days. The estimate indicates 12.97% year-over-year growth.

Microsoft currently carries a Zacks Rank #3 (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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