What happened

Shares of Microsoft (MSFT 0.74%) were up 3.5% as of 1:31 p.m. ET on Monday, following favorable analyst notes. Mizuho Securities and Morgan Stanley both maintained their overweight and buy ratings, respectively, ahead of Microsoft's next earnings report on Oct. 25.   

Normally, analyst calls don't have much weight for long-term investors, given Wall Street's short-term focus, but these calls highlight Microsoft's strength in a relatively weak PC market. Microsoft has a diversified revenue stream across the consumer and commercial markets, which Morgan Stanley believes will help offset the PC industry's weakness in the near term. 

A weak PC market has dragged Microsoft stock down 30% year to date, underperforming the S&P 500 index loss of 23%. 

So what

PC shipments fell 15% year over year in each of the last two quarters, which has market traders worried about Microsoft's revenue growth. However, Microsoft still reported top-line growth of 12% last quarter, or 16% on a constant-currency basis. 

Microsoft is performing well in a tough environment. The strongest areas of the business last quarter were enterprise services, such as Dynamics 365, LinkedIn, Azure cloud, and Office 365 Commercial. 

The weakest areas were consumer related, as expected. Xbox gaming revenue declined 4% on a constant-currency basis, while sales of preinstalled versions of Windows to PC manufacturers fell 2%. These two areas will likely show softness in the next quarterly report, but growth on the commercial side should carry Microsoft forward.

Now what

Overall, Morgan Stanley reduced its fiscal first-quarter revenue estimate by just 1% to account for the weakening PC market. Analyst Keith Weiss believes Microsoft's commercial business will remain resilient after hearing strong feedback from commercial customers in channel conversations. 

Microsoft's high-margin revenue streams from subscriptions and cloud services is enhancing the company's ability to produce staggering levels of free cash flow, growing to $65 billion over the last year. Microsoft is loaded with cash, allowing management to continue investing for long-term growth across several niche markets.