How Gamers Are Powering Microsoft’s Next Wave of Growth

Key Points

• Microsoft is chiefly known for its cloud services and software suite, but its gaming line is increasingly adding to its top line. 
• The second-largest company by market cap has recently announced a 50% increase to its Game Pass.
• The move comes after Microsoft surpassed $5 billion in gaming revenue for the first time ever.

When most people think about Microsoft NASDAQ: MSFT, they often think of the Bill Gates-cofounded company as a legacy tech disruptor that has evolved into a current Magnificent Seven member and serial acquirer. Its role in the world of personal computers (PCs) is foundational, and more recently, the company’s cloud computing platform, Azure, has become the go-to option for Fortune 500 companies looking for cloud services, application development, data storage and advanced services for AI and machine learning.

As the world’s second-largest publicly traded company with a market cap of $3.9 trillion, Microsoft generates the majority of its revenue via Azure, its Microsoft 365 software suite, and Windows operating systems, respectively. 

But in its fiscal year 2025, which ended June 30, Microsoft reported that 8.33% of its revenue came from its gaming line. And with the announcement on Oct. 1 that the company will be increasing the price of its Xbox Game Pass, that business segment is being seen as a steadily growing contributor to Microsoft's already swelling top line. 

Xbox Game Pass Sees a Big Price Hike… Again

Microsoft’s subscription-based Xbox Game Pass is getting a makeover. Beginning this month, the tiered plans will see Game Pass Core subscribers automatically shifted to Essential, Standard subscribers shifted to Premium, and Ultimate subscribers remaining in their current plan—but facing a 50% price increase. The price for Ultimate users will now be $29.99 per month, up from $19.99 per month, which works out to an extra $120 per year. 

That move comes a little more than a year after the company increased that price from $16.99 per month. Microsoft says that accompanying the price hike are numerous features, including expanded game libraries, access to PC titles, unlimited cloud gaming, in-game benefits, and revamped rewards.

While the news had a mixed reception among users, the company will look to continue building on the momentum that its gaming segment has enjoyed over its past fiscal year. According to the company’s FY25 Q4 results: 

• Since launching in 2017, Game Pass now has 500 million monthly active users.
• Xbox gaming revenue rose by 10% year-over-year (YOY), while Xbox content and services rose by 13% YOY.
• For the first time ever, Game Pass generated nearly $5 billion over the company’s last fiscal year.  

During the Q4 earnings call, CEO Narayana Nadella noted that Microsoft was the top publisher on both Xbox and PlayStation that quarter. He also commented that the Call of Duty franchise saw 50 million players log 2 billion hours of play time over the past year, Minecraft saw record monthly active usage bolstered by the enormously successful release of A Minecraft Movie, and the company currently has nearly 40 games in development. 

When isolating its gaming revenue, Microsoft is now the third-largest company in the gaming space, trailing only Sony NYSE: SONY and Chinese multinational conglomerate Tencent Holdings Ltd. OTCMKTS: TCEHY. With games spanning platforms like Xbox consoles, Sony’s PlayStation, PCs, and other platforms, the company continues to broaden its footprint in the gaming space. Its acquisitions of Bethesda (maker of Skyrim and the Fallout franchise) in 2021 and Activision (maker of the Call of Duty franchise and World of Warcraft) in 2023 have only bolstered its position in the industry. 

Historical Precedent Suggests Price Increases Don’t Deter Gamers

This past May, Microsoft announced it would be increasing the price of its Xbox consoles in response to President Trump’s tariffs levied against China. That was in the wake of the company experiencing a 6% decrease in Xbox hardware sales, suggesting that demand may have been showing signs of waning. Instead, shares of MSFT have gone on to gain nearly 21% since.

More broadly, the company posted exceptional full-year financial results:

• Net income increased nearly 16% YOY to $101.8 billion.
• EPS increased nearly 16% YOY to $13.64.
• Net cash from operating activities increased nearly 15% YOY to $136.1 billion. 
• Total assets increased 21% YOY to $619 billion. 

While analysts await Microsoft’s Q1 2026 earnings call on Oct. 29, analysts remain bullish, and the company’s recent move to increase its subscription fees for Xbox Game Pass likely underscore Wall Street’s stance. 

Based on 34 analysts’ ratings, MSFT’s current 12-month price target represents potential upside of nearly 18%, with 32 analysts assigning the stock a Buy rating, two assigning it a Hold rating, and none assigning it a Sell rating. Overall, it receives a consensus Moderate Buy rating. Institutional ownership remains robust at more than 71%, while short interest is a minuscule at just 0.89%.