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Microsoft Expands Security Offering: Is it the Next Revenue Pillar?

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Key Takeaways

  • Microsoft's security business serves nearly 1.5 million customers as it becomes a major revenue pillar.
  • MSFT analyzes 100 trillion security signals daily, powering AI-driven threat detection and response.
  • Security Copilot agents autonomously triage alerts and execute remediation at machine speed.

Microsoft's (MSFT - Free Report) security business is solidifying its position as a major revenue contributor, with the company now serving nearly 1.5 million security customers following the robust performance in fiscal 2025. The tech giant closed fiscal 2025 with Microsoft Cloud revenues surpassing $168 billion annually, up 23%, while prioritizing security above all else in its engineering investments. This strategic emphasis positions security as a cornerstone of Microsoft's future growth trajectory alongside its dominant cloud and productivity franchises.

The integration of artificial intelligence into Microsoft's security stack represents a transformative shift in how enterprises defend against evolving cyber threats. Microsoft systems now analyze more than 100 trillion security signals daily, leveraging this massive data advantage to power AI-driven defensive capabilities. In September 2025, Microsoft announced the evolution of its Sentinel SIEM platform into an agentic AI platform, introducing a unified data lake and AI-ready security agents that enable automated threat detection and response at machine speed. These Security Copilot agents can autonomously triage alerts, correlate incident data, and execute remediation steps, reducing mean time to resolution while enabling security teams to focus on strategic threats rather than routine tasks.

Microsoft Defender now secures nearly 2 million generative AI applications, demonstrating the company's ability to address emerging AI security requirements as enterprises accelerate adoption of large language models and AI agents. The six proprietary Security Copilot agents, along with five partner-developed agents, autonomously manage high-volume security and IT tasks while integrating seamlessly with Microsoft's broader security portfolio. The platform's unified data lake cuts ingestion costs by up to 50% compared to traditional SIEM solutions while enabling retroactive threat hunting at petabyte scale.

Microsoft's security expansion strategy leverages its substantial installed base and cloud infrastructure advantages that pure-play cybersecurity vendors struggle to match. With enterprises increasingly seeking consolidated security platforms to reduce complexity and costs, Microsoft's end-to-end approach spanning identity management through Entra, endpoint protection via Defender, and compliance capabilities in Purview creates powerful cross-selling opportunities within its existing customer relationships. The security segment's momentum, amplified by AI-powered automation and the company's unparalleled threat intelligence capabilities, suggests Microsoft is building its next multi-billion-dollar revenue pillar that could rival the scale of its established franchises.

Competitive Landscape: AI-Powered Security Expansion

Palo Alto Networks (PANW - Free Report) reported AI-related annual recurring revenues of approximately $545 million in fiscal fourth-quarter 2025, increasing more than 2.5 times year over year, with its XSIAM AI-driven security operations platform serving approximately 400 customers. Palo Alto Networks' XSIAM ARR demonstrated 200% year-over-year growth, while Palo Alto Networks achieved a $10 billion annualized revenue run-rate with Next-Generation Security ARR reaching $5.6 billion.

CrowdStrike (CRWD - Free Report) introduced Charlotte AI Detection Triage, representing a major breakthrough in agentic AI-driven security operations, as the company's fiscal 2025 annual recurring revenues reached $4.24 billion with 23% year-over-year growth. CrowdStrike maintained 97% gross retention rates while accelerating module adoption rates to 67% and 48% for customers deploying five or more and six or more cloud modules, respectively. Both pure-play cybersecurity vendors are integrating artificial intelligence capabilities to automate threat detection and response, competing against Microsoft's broader platform consolidation strategy.

MSFT’s Share Price Performance, Valuation & Estimates

Microsoft shares have appreciated 21.8% in the year-to-date period, outperforming the Zacks Computer – Software industry’s growth of 19.4%.

MSFT’s YTD Price Performance

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From a valuation standpoint, MSFT stock is currently trading at a forward 12-month Price/Sales ratio of 11.4X compared with the industry’s 8.51X. MSFT has a Value Score of D.

MSFT’s Valuation

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Image Source: Zacks Investment Research

The Zacks Consensus Estimate for MSFT’s fiscal 2026 earnings is pegged at $15.40 per share, up 0.1% over the past 30 days. The estimate indicates 12.9% 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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