Oh Come On!
Investor, Venture Capital Background
Microsoft's $75B Activision Blizzard deal has been a total failure, underperforming cash. Three years in, Game Pass has about 30M subscribers at $20 a month, roughly $7.2B a year; at a 33% margin that is $2.4B, a 30-year payback, and the deal didn't materially help console sales. The same $75B in a high-yield savings account would throw off over $3B a year. x.com x.comÂ
Microsoft's cloud growth rests on OpenAI commitments that OpenAI cannot pay. Like synthetic CDOs whose AAA-rated tranches were wiped out when the underlying inputs were bad, cloud growth built on OpenAI is only as sound as OpenAI itself; hyperscalers are like movie chains counting on MoviePass for growth. x.comÂ
Microsoft is a great business but still an expensive bet at $385, because heavy AI capex is eroding free cash flow. Capex was revised to $190B for the year, $43B above expectations, and free cash flow fell to $15.8B. Revenue grew 18% to $82.9B, operating income 20%, Azure 40% and AI run rate reached $37B, with a 47% operating margin. The average analyst target of $560 implies 45% upside only if the AI spending converts on schedule. x.comÂ
Netflix's problems are solvable while it prints money, making the stock a bargain at this price with a huge moat and great franchise. Its strategy should include more movies in theaters, sports only at a reasonable cost, a fixed ad business, and buying Take-Two to own a game studio and IP; GTA6 is a huge opportunity to connect with younger viewers and run ads in-game. x.com x.comÂ
Microsoft's AI spending is producing faster growth with better economics: Azure accelerated to 48% on a $100B+ base while capex was $39.4B, below expectations. Management then guided Azure to 49-50% and said demand still exceeds supply, ending the debate over whether AI investment is paying off. Overweight, $625 target. x.com x.com x.comÂ
Microsoft is not cheap even after a 20% drop: it fails a strict 20% margin-of-safety valuation hurdle. x.comÂ
Microsoft is losing ground in fast AI innovation and is not cheap enough to compensate. Copilot was strong a few months ago but is no longer competitive in an agent-driven world, and the stock closed below its 200-week moving average for the first time since 2013. At about 21x forward EPS for 22% growth it is solid but not cheap, and compared with Nvidia there is little argument for allocating even 1% of a portfolio to Microsoft. x.comÂ
Microsoft's salesforce and governed platform unlock AI spending at conservative firms. Faster enterprise than consumer AI adoption makes it effectively the only pure play. M365 Commercial may top 20% growth next quarter, sooner than expected on tonight's guide; GitHub resegmentation helps, but it should do so this year anyway. Azure and M365, two-thirds of revenue, should grow above 50% and 20% and may accelerate. $24-25 CY27 EPS remains achievable, implying under 22x forward earnings. x.com … Show more
Microsoft is cheap but not a long-term holding, because it is not growing fast enough while Nvidia is cheaper, growing much faster and better positioned. Microsoft may be re-rating, but the backdrop could also push it to a 15x P/E, so for now it is only a tradable situation. x.comÂ
Microsoft and the other megacaps apart from Nvidia deserve to trade where they are, because multi-trillion-dollar companies can't outperform the market when they are on the verge of reporting zero free cash flow. x.comÂ
Microsoft's 50% Azure growth and prospect of positive cash flow in 2027 make the stock look bulletproof. Headcount cuts, lower Anthropic spend, a better Copilot routed to cheaper tokens, and coming proprietary chips and model usage add to the case. It should get Apple's multiple plus recognition for cybersecurity. x.com x.comÂ
Microsoft and Meta, as the AI buildout's longest-dated cash flows, face pressure from rising long yields and credit stress equity investors have yet to price. The 30-year Treasury broke out to a 5.28% cycle high; a weekly close above 5.30% raises crash risk, and 5.50% ends the constructive view. Oracle's five-year CDS hit 203 bp, an 18-year high, after S&P cut it to one notch above junk, and hyperscaler swaps hit record wides. An autumn crash is about a one-in-three chance. x.com x.comÂ
