Microsoft

Microsoft exhibits excellent pricing power, reflected in its high margins and ability to increase prices with minimal customer churn. The company’s gross margins are around 70% and operating margins near 45% – extraordinarily high for a $280+ billion revenue business.

This profitability indicates that customers are willing to pay premium prices for Microsoft’s mission-critical software and cloud services.

For example, Microsoft has successfully transitioned many products (Office, Windows Server, etc.) to subscription models and has implemented price increases (such as Office 365 subscription hikes) without losing significant business, thanks to the essential nature of these tools for enterprises.

Key franchises like Windows and Office face little direct substitution at scale, allowing Microsoft to charge robust licensing fees.

In cloud services, while Azure competes with Amazon and Google, Microsoft often bundles value-added services and leverages enterprise relationships (e.g. discounts for Azure when using other Microsoft products), which helps sustain pricing.

The net result is expanding earnings – net income rose 22% in FY2024 on a 16% revenue increase, indicating rising efficiency and pricing leverage. If anything, Microsoft still has untapped pricing power in areas like new AI offerings: it plans to charge substantial premiums for AI integrations (e.g.

Microsoft 365 Copilot add-ons) that could further boost margins. We do avoid firms with thin or eroding margins, and Microsoft is the opposite – its margins are both very healthy and have held or improved over time. This suggests it can weather inflationary costs or competitive pressures without sacrificing profitability.