A solid outlook by Microsoft Corp. (MSFT) for its upcoming business year reassured investors that the world's largest software maker will continue to post healthy growth ahead of the release of its next version of Windows, code-named Longhorn.

Microsoft shares rose 2 percent and helped lift other technology stocks Friday, the day after the company said it expects revenue to rise 9 percent to 11 percent in the fiscal year beginning in July, ahead of the analysts' average estimate of about 8 percent.

Microsoft, based in Redmond, Wash., is set to unveil the next generation of its Xbox console May 12, with initial sales generally seen later in the year, and will also be releasing new database software this summer.

Longhorn is due out in 2006, five years after Windows XP (search). That would mark the biggest time lag ever between major Windows releases, which sparked fears of waning demand ahead of Longhorn.

But the new Xbox and database releases "will provide investors near-term stability to rekindle interest in shares of Microsoft heading into the psychologic buildup around Longhorn," said Piper Jaffray analyst Gene Munster.

Microsoft's outlook for fiscal 2006 also helped ease any concern about its revenue performance. In the latest quarter, revenue came in at $9.62 billion, short of Wall Street's forecast for $9.8 billion. Profit nearly doubled, however, because of lower legal costs, strong sales of its server software for networked computers and continuing demand for the current Xbox console.

Microsoft shares rose 51 cents, or 2.1 percent, to $24.97 in Nasdaq trade, but are still down 6.5 percent percent year to date.

Despite an aggressive share buyback plan and strong recommendations by 29 of 31 analysts tracking the company, Microsoft stock has been stuck at valuations well below the rest of the software industry.

The shares are trading at about 17 times forward earnings, in line with the S&P 500 Index, but well below a price-to-earnings ratios of 22 for Germany's SAP AG and 34 for Siebel Systems Inc. (SEBL).

The only major software company with a weaker valuation than Microsoft's is Oracle Corp. (ORCL), which is trading at about 14 times forward earnings. Analysts say, however, that Oracle's and Siebel's valuations mostly reflect investor sentiment that the acquisitive database software maker may be targeting Siebel next.

Sanford C. Bernstein & Co. analyst Charles Di Bona also noted that Microsoft had started to deliver on its plan to buy back up to $30 billion of its own stock over the next four years. The company repurchased $2.4 billion in its third quarter, which ended March 31.

"We expect the company to continue to purchase significant amounts of stock in coming quarters, which should help bolster reported earnings per share," Di Bona said in a research note.

The strong outlook is also likely to reassure investors that Microsoft could sustain sales as it prepares to debut Longhorn, even if it ends up delaying the release.

"The date (for releasing Longhorn) is not the top priority," Microsoft Chairman Bill Gates (search) said in an interview earlier this week, "Quality is the top priority."