Deep Inference
Partner at Aion Analytics, Quantitative Markets Research
Microsoft is worth holding because missing a rebound toward $500 would be worse than owning it through further declines. It is positioned to capture upside from the coming AI IPO wave, as OpenAI eyes a listing as early as the second half of 2026 at up to $1T and Anthropic may debut around October 2026, together potentially raising more than every US IPO since 2022. 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
Rapid revenue growth makes the capex bear case harder to justify for Microsoft, Alphabet, Meta and Amazon. Their latest cited growth rates are 18%, 23%, 28% and 16% in Q2, respectively; their scale does not seem to be slowing them as expected. x.comÂ
Microsoft's delivery delays are affecting earnings, making other sources of returns look safer now. x.comÂ
Microsoft is one of the few Mag7 companies projected to generate substantial positive free cash flow despite massive AI spending. FCF is forecast at $34.6B in FY2027, $49.4B in FY2028 and $98.1B in FY2029. Microsoft and Apple lead the group in projected FCF, while Alphabet, Meta and Amazon face significant FCF pressure from AI infrastructure spending. 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 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
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's faster Azure growth on less capital spending than feared is the mix investors wanted from Big Tech. Azure brought in $33.2 billion last quarter, up 48%, its third consecutive quarter of accelerating growth; capex was $45.2 billion versus $50.8 billion expected. x.comÂ
Microsoft is expensive on cash flow even though its 19-22x forward P/E looks like a 40% discount to its 10-year average. Its 2.0% forward free-cash-flow yield sits below the 3.3% 10-year median, and at this point in the cycle earnings multiples mislead while free cash flow is what the market actually prices. x.comÂ
Azure's accelerating growth and better returns per capex dollar leave further upside on the table for Microsoft, the favored hyperscaler. Azure grew 48% versus 44-45% guidance, its fifth straight beat. The stock is holding eight-week EMA support, with the blue candle still intact. x.comÂ