MSFT changes
Pick any two versions below to diff them.
- Price
- $531.33 → $521.91(−1.8%)
- Discount category
- Below intrinsic value → Close to intrinsic value
- Next earnings
- Oct 28, 2026 → Jan 28, 2027
- Next earnings is estimate
- No → Yes
- Thesis
- The market discounts Microsoft mainly because of its record AI data center spending. removed: Capital spending, including finance leases, was $41 billion in added: In the removed: June added: September 2026 quarter, added: cash spending on property and removed: Microsoft guided more than $50 added: equipment was $39.4 billion, and new finance leases added $5.2 billion removed: for the September 2026 quarter. added: more. Investors fear that this spending will hold down free cash flow for years before it pays back. For the gap to close, Azure revenue growth must keep pace with the new data center capacity. That would show that the spending buys revenue and not only cost. added: Under a new and narrower Azure removed: growth was 43% added: definition, Azure revenue grew 48% in the removed: June 2026 quarter. For the September 2026 quarter, removed: management added: above the guided removed: Azure growth of 44% to 45% in constant removed: currency, under a new and narrower Azure definition. added: currency. Commercial remaining performance obligation grew 73% to $677 billion. Management says that Azure capacity is still smaller than demand. Microsoft also depends less on one AI partner. OpenAI contracted to buy an additional $250 billion of Azure services, and Copilot now offers Anthropic's Claude models together with OpenAI's models. In September 2026, Microsoft added new coding and agent tools to Copilot, and Azure customers started to use OpenAI's new GPT-6 Astra model. These are signs that AI products bring paid use and not only cost. removed: Microsoft will report added: The fiscal Q1 2027 removed: results on added: report of October 28, removed: 2026. That report will show whether Azure growth and margins hold as added: 2026 showed that the spending removed: increases. added: buys revenue for now: revenue grew 19% and operating income grew 21%. The fiscal Q2 2027 report, expected in late January 2027, is the next test. If Azure keeps growing near its current pace through mid-2027, the gap can close over the next two to four quarters.
- Risks
- Microsoft removed: plans to keep added: keeps raising capital spending removed: into added: in fiscal removed: 2027, after spending about $41 added: 2027. In the September 2026 quarter, it spent $39.4 billion in removed: one quarter added: cash on removed: data centers. added: property and equipment and added $5.2 billion of finance leases, and leases of $364.6 billion had not started yet. If Azure demand growth slows before this spending pays off, margins and free cash flow will suffer. Microsoft accounts for its OpenAI stake in a way that pulls OpenAI's swings between profit and loss directly into Microsoft's own reported net income each quarter. This adds volatility to Microsoft's earnings that has little to do with its core software and cloud business. Amazon Web Services and Google Cloud are also spending heavily on AI data centers, and compete directly with Azure for the same enterprise AI workloads. A shift in market share toward either competitor would slow Azure's growth rate.
- Balance sheet
- Cash: removed: $76.8B added: $64.5B Debt: removed: $46.1B added: $41.3B Net cash: removed: $30.7B added: $23.2B Interest cover: removed: 50× added: 53× Debt due within 12 months: removed: $9.3B added: $4.4B Ratings: S&P AAA, Moody's Aaa (stable outlook) Microsoft has the highest credit ratings, and its bond debt is small. It pays for much of its data center build-out through leases, not bonds, and these leases fix a large part of future costs, even if AI demand does not hold. Debt is the face value of senior unsecured notes at removed: June added: September 30, 2026, and the amount due within 12 months is removed: for the removed: year to June 2027. added: current portion of long-term debt on that date. Microsoft repaid $4.9 billion of notes in the September 2026 quarter and issued no new bonds. Moody's affirmed its rating on August 21, 2026. Moody's expects that free cash flow after dividends will be slightly negative in fiscal 2027 and 2028, about $4 billion in total, because of the high capital spending. removed: Microsoft issued no new bonds in fiscal 2026. Finance added: At September 30, 2026, finance lease liabilities removed: rose to added: were $71.0 billion, up from $66.6 billion removed: from $46.2 billion a year earlier, added: at June 30, and operating lease liabilities were removed: $21.9 added: $27.5 billion. Leases that had not started yet added removed: $329.1 added: $364.6 billion of future removed: commitments. added: commitments, up from $329.1 billion at June 30. Interest cover is added: operating income over interest expense for removed: fiscal 2026, added: the September 2026 quarter, and most of that interest now comes from finance leases. removed: Operating added: In the quarter, operating cash flow of removed: $182.9 added: $58.0 billion paid for added: cash capital expenditure of removed: $115.9 added: $39.4 billion, dividends of removed: $26.4 added: $6.8 billion and buybacks of removed: $22.3 added: $4.4 billion. The balance sheet gives room to keep spending and returning cash. As of removed: Jun added: Sep 30, 2026.
- Checkpoints
- Oct 28, 2026: Fiscal Q1 2027 results: Azure growth versus capex. removed: Pending. added: Passed. Watch: Azure growth near the guided 44% to 45% in constant currency, under the new Azure definition, with stable cloud margins passes; a clear Azure slowdown while capex keeps rising fails. added: Outcome: Azure revenue grew 48%, above the guidance, and operating income grew faster than revenue. Jan added: 28, 2027 (estimate): Fiscal Q2 2027 results: Copilot uptake and Azure capacity. Pending. Watch: Azure growth that holds near its current pace and rising paid Copilot use pass; slower Azure growth with no sign of new capacity filling fails.
- Recent events
- Oct added: 28, 2026: Microsoft reported fiscal Q1 2027 results, for the quarter that ended September 30, 2026. Revenue grew 19% to $92.3 billion. Operating income grew 21% to $45.9 billion. Azure revenue grew 48% to $33.2 billion, and Microsoft Cloud revenue grew 30% to $63.9 billion. Commercial remaining performance obligation grew 73% to $677 billion. Net income was $36.6 billion and diluted EPS was $4.92. Without the effect of the OpenAI investment, EPS was $4.89, up 18%. Cash spending on property and equipment was $39.4 billion, and operating cash flow was $58.0 billion. The 10-Q shows that Microsoft now holds about 24% of OpenAI on an as-converted basis. Oct 26, 2026: Anthropic filed for its initial public offering. Its S-1 shows that it committed to spend at least $44.9 billion with Microsoft between November 2026 and May 2033. Oct 12, 2026: Microsoft said that its own Maia 200 AI chip now runs production work, such as Copilot. It will scale the Maia chips to multi-gigawatt deployments from 2027 and make them the main system that runs AI models for its own products. Maia 300 starts production deployments in 2027. Microsoft expects it to give 40% more tokens per megawatt than leading GPU systems. This is a company estimate. Oct 7, 2026: Microsoft confirmed that it will report fiscal Q1 2027 results after the market closes on October 28, 2026. Oct 1, 2026: Microsoft said Ryan Roslansky, head of the Office and Teams group and former LinkedIn CEO, will leave the company at the end of 2026. Office and Teams now report to the Copilot, Agents and Platform organization of Charles Lamanna. Sep 25, 2026: Microsoft added new coding tools and an agent that works without stops to Copilot. The stock rose about 3.7% that day, to its highest close of 2026. Sep 15, 2026: Microsoft increased its quarterly dividend by 8%, to $0.98 per share. Microsoft will pay it on December 10, 2026. Sep 4, 2026: CEO Satya Nadella said that early Azure customers already use OpenAI's new GPT-6 Astra model. On September 3, Microsoft started to offer the model on its Foundry platform through a limited access program. Sep 2, 2026: Microsoft changed how it reports its results, starting in fiscal 2027. It now has two segments, Agents and Infra, and Devices and Consumer. Azure revenue no longer includes GitHub cloud, Security Copilot and Healthcare cloud. Under the new definition, Azure revenue was $101.9 billion in fiscal 2026 and grew 42% in the June 2026 quarter. Aug 21, 2026: Moody's kept Microsoft's Aaa credit rating with a stable outlook. Jul 29, 2026: Microsoft reported Q4 fiscal 2026 results. Revenue was $90.0 billion, up 18% from last year. Azure revenue growth increased to 43%. Capital spending, including finance leases, was $41 billion for the quarter. For the September 2026 quarter, Microsoft guided Azure growth of about 45% in constant currency and capital spending of more than $50 billion. Apr 27, 2026: Microsoft and OpenAI changed their partnership. Microsoft no longer has exclusive access to OpenAI's models and technology, and OpenAI can sell its services through other clouds, such as AWS. Azure stays OpenAI's primary cloud and gets new OpenAI products first. Microsoft no longer pays a revenue share to OpenAI, and OpenAI continues to pay a revenue share to Microsoft through 2030. Oct 28, 2025: OpenAI completed its restructuring into a public benefit corporation. Microsoft received a stake of about 27%, worth about $135 billion. OpenAI contracted to buy an additional $250 billion of Azure cloud services.