Research & Invest
Investor, Institutional Asset Management Background
Microsoft's new Copilot could make it over-earn if executed well, much like Meta's Muse, and all its compute will come in handy. Per @dee_bosa, Copilot is Microsoft's bet that the AI race is moving from models to products, choosing among models while keeping customers inside Microsoft, with Autopilot working across users' apps and data. A revenue share from OpenAI adds further upside. x.comÂ
Microsoft is a better way to own cybersecurity than Palo Alto Networks, since its cybersecurity business is 4x larger and growing fast. Microsoft owns OpenAI, runs its workloads on Azure and integrates OpenAI's Astra, which is good at cybersecurity, into its models. If Palo Alto is worth $300B on $10B of ARR, Microsoft's $35-40B business with the best model integrated should be worth at least $600B. x.comÂ
Microsoft's Copilot could win in enterprise AI long term because it runs natively in Microsoft 365, where enterprise work already happens, with only about 30 million of some 450 million paid M365 seats on it so far. Microsoft guided above consensus, and Azure growth improved from 39% to 43%, with 45% guided. Value is shifting from models to infrastructure like public clouds. OpenAI, 27% owned by Microsoft, is the biggest concern, which is partly why Microsoft is exploring open-source models. … Show more
Microsoft looks set to break out again, this time on agents after its last breakout came from the cloud rerating. Nadella is making Copilot the operating system for work, unifying chat, coding and long-running agents in one entry point instead of scattering them across Studio, Cowork and GitHub Copilot, to defend against OpenAI and Anthropic selling all-in-one apps to its core enterprise customers. Pricing shifts from seats toward compute, with Cowork, Code and Autopilot billed by usage. x.comÂ
Microsoft's $13 billion OpenAI investment may be impaired, because OpenAI's CFO Sarah Friar has worried, per Bloomberg, that the company might not be able to pay for future compute contracts if revenue does not grow fast enough. OpenAI, valued at $852 billion, has no real profit and burns through GPUs and investor cash. That would accelerate Microsoft's already sizable decline this year. x.comÂ
Microsoft's good-enough approach to AI offers a model beyond capex that eats free cash flow before returns are visible, and its earnings may have triggered an inflection in the AI trade. Related stocks rose as soon as the CFO said Microsoft will be free-cash-flow positive next year. Copilot is not the best AI product, but it has 30 million paid seats and keeps improving. Only time will tell which approach is right, but good enough usually works out for Microsoft. 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 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 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's Copilot profit line is metered agent work rather than seat sales, and that meter could outrun the next 10 million seats. Over 30 million paid Copilot seats are distribution: at the $30 monthly list price they annualize to $10.8bn before discounts, and Microsoft doesn't break out Copilot revenue. Usage-billed Autopilot credits then meter the work each seat already unlocked. x.comÂ
Microsoft's revenue dependence on OpenAI is a negative, though not as bad as expected. Of Azure's more than $100B of fiscal 2026 revenue, $24B came from OpenAI. Replying to @sv_techie, who heard 70% of Microsoft's AI revenue comes from OpenAI: it is unclear how AI revenue is quantified, but the Azure figure is solid. x.com 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
