← All thesesMSFTNeutralMedium convictionThursday 29 October 2026עברית

Microsoft

The company behind Windows and Office, which now earns most of its money renting computing and AI to businesses through Azure and selling Microsoft 365 subscriptions.

Our viewNeutral Medium conviction
The scores
The profile · 1-4
Growth3/4 ↑

Revenue up 19% and operating income 21%, Azure up 48%, but $10.0B of the quarter came from OpenAI, a related party Microsoft funds.

Business quality4/4 →

Dominant in office software in the EU's view, with price rises sticking on slow seat growth; AI labs selling agents directly are the untested attack.

Financial position3/4 ↓

Net cash and self-funding, but $743.8B of obligations and $364.6B of leases not yet started behave like debt, and free cash flow is falling.

Execution record4/4 →

A decade of growth under the same chief executive and CFO, nine straight EPS beats and the Azure guide beaten; spending rises were signalled.

Per share capture4/4 →

The diluted count fell 1.2% in four years, buybacks exceed stock pay, Activision was bought for cash and there are no convertibles.

Potential3/4 ↑

20% of a $500B cloud market growing 43%, with $677B signed; the upside needs the build to pay and the backlog to outgrow OpenAI.

Risk profile3/4 ↓

One serious concentration: OpenAI, a related party, was $24.1B of revenue and about 45% of the backlog, and may now use any cloud.

Valuation3/4 ↓

At 25.9 times operating profit and a P/E of 29.2 against its 34.2 median, the price reflects the plan; on cash it is dearer.

Evidence quality3/4 →

Revenue, cash, backlog and commitments are filed; share is measured outside; OpenAI's backlog share and AI usage rest on reporting and management.

The Verdict

We rate Microsoft neutral. The business is strong: its office software is so embedded that it keeps raising prices, and Azure, its cloud, grew 40% last year. But to keep up with AI demand it nearly doubled its spending on data centres, so profit rose while the cash left over fell for a second year. On profit the price is fair; on cash it is dear. The view hinges on whether that spending turns back into cash, and on how much of the cloud's signed business still rests on OpenAI.

The long caseCompanies want more AI computing than anyone can build, and Microsoft sells both the cloud and the office tools it runs in; the spending must turn back into cash.

The evidence under this - 8 claims
C17facthigh confidence
The European Commission's preliminary view was that since at least April 2019 Microsoft had abused a dominant position in productivity software for professional use by tying Teams to Office. On 12 September 2025 it accepted commitments, for seven years, to sell suites without Teams at a lower price.
against this

The commitments avoided an infringement finding, so dominance is the Commission's preliminary view, not a ruling.

current state · 2025-09-12written 2026-10-07
C19inferencemedium confidence
With Microsoft 365 Commercial cloud revenue up 17% on paid seats up 6% in fiscal 2026, revenue per seat rose about 10% a year before the July 2026 price rise, so customers pay more while the seat base barely grows.
derivedC03's revenue and seat growth, and C18's list prices
against this

Part of the revenue per seat is Copilot and E5 upgrades, which customers chose rather than had imposed.

historical · FY2026written 2026-10-07
C05facthigh confidence
Recast for fiscal 2027's two segments, Agents and Infra had fiscal 2026 revenue of $268,127M and operating income of $136,365M, and Devices and Consumer $63,712M and $18,872M. Azure revenue was $101,938M, up 40%, and 42% in the June quarter; Microsoft 365 cloud was $100,299M.
historical · FY2026written 2026-10-07
C11facthigh confidence
Fiscal 2026 operating cash flow was $182,935M and cash spent on property and equipment $115,948M, so free cash flow was about $67.0B against $71.6B in fiscal 2025 and $74.1B in fiscal 2024. Finance leases added to that: June quarter capital spending of $41B included $5.6B of them. In the September 2026 quarter cash from operations was $58.0B and cash spent on property and equipment $39.4B, so free cash flow was $18.6B against $25.7B a year earlier, and about $60.0B over twelve months.
  1. 2026-10-28editedthe September 2026 quarter cash flow statement
historical · FY2024 to FY2026written 2026-10-07
C37inferencehigh confidence
Reported profit is running ahead of cash: operating income rose 42% from fiscal 2024 to 2026 while free cash flow fell 10%, because cash spent on the build was three times depreciation, and the longer asset lives from fiscal 2027 widen that gap further.
derivedC02, C11, C14 and C33
against this

The spending buys capacity against a signed backlog (C06), and management says the short-lived chips are bought against contracted demand (S03).

historical · FY2024 to FY2026written 2026-10-07
C23facthigh confidence
The vendor puts enterprise value at 25.9 times trailing operating profit against 23.0 for Oracle, 28.5 for Alphabet and 31.0 for Amazon. Microsoft has the highest operating margin of the four, 46.8% against a median of 32.4%, and slower revenue growth, 17.8% against 20.1%.
against this

Each rival's multiple also prices a business Microsoft lacks, retail, search ads or database licences, so the comparison bounds the price rather than fixing it.

current state · 2026-10-07written 2026-10-07
C25estimatemedium confidence
At $3.91T the price is about 58 times fiscal 2026 free cash flow of $67.0B. For the yield to return to its 2.4% median at this price, free cash flow would have to rise about 40%, to near $94B, while capital spending is guided higher.
against this

On earnings the price is below its own median (C24), and consensus has fiscal 2027 EPS at $19.74, about 27 times (C26).

current state · 2026-10-06written 2026-10-07
C10factmedium confidence
Directions on Microsoft reported that OpenAI's Azure commitments were 45% of the $625B commercial backlog at December 31, 2025, that OpenAI had said it would buy $250B of Azure services, and that OpenAI had also signed capacity deals with Amazon and Google.
against this

Management says backlog excluding OpenAI grew 25% and that the June quarter's sequential growth came from other customers (C07).

current state · 2025-12-31written 2026-10-07
01

The company

Microsoft runs huge data centres and rents them out. Through Azure, a business can run its software and AI models, OpenAI's among them, without owning servers; Microsoft holds a fifth of that market. Through Microsoft 365, employers pay a monthly fee per worker for Word, Excel, Outlook, Teams, security and now the Copilot AI assistant.

The alternative for a cloud buyer is Amazon, Google or its own servers; for an office, Google Workspace, or AI agents bought straight from the labs.

The evidence under this - 5 claims
C01facthigh confidence
Microsoft sells cloud computing and AI services (Azure), Office and Microsoft 365 subscriptions, LinkedIn, Dynamics business software, Windows, Xbox and Bing advertising. Fiscal 2026 revenue was $331,839M: server products and cloud services $129,425M and Microsoft 365 Commercial $101,997M.
historical · FY2026written 2026-10-07
C03facthigh confidence
Microsoft Cloud revenue was $214.4B in fiscal 2026, up 27%, at a 66% gross margin. Azure and other cloud services grew 41%, Microsoft 365 Commercial cloud 17% on paid seats up 6%, Microsoft 365 Consumer cloud 28%, LinkedIn 11% and Dynamics 365 18%.
historical · FY2026written 2026-10-07
C05facthigh confidence
Recast for fiscal 2027's two segments, Agents and Infra had fiscal 2026 revenue of $268,127M and operating income of $136,365M, and Devices and Consumer $63,712M and $18,872M. Azure revenue was $101,938M, up 40%, and 42% in the June quarter; Microsoft 365 cloud was $100,299M.
historical · FY2026written 2026-10-07
C15management claimmedium confidence
Management says demand exceeds capacity, that it added a gigawatt in the June quarter and will roughly double capacity in two years, and that paid Microsoft 365 Copilot seats passed 30 million, with net seat additions more than doubling.
against this

Thirty million seats is a small share of a base Microsoft puts at more than 430 million users of its apps (S08), and Business Insider reports Copilot lagging ChatGPT and Claude in adoption (C20).

current state · 2026-07-29written 2026-10-07
C16facthigh confidence
Synergy Research measured cloud infrastructure services at $143.4B in Q2 2026, up 43%, and $500B over twelve months, with Amazon at 28%, Microsoft 20% and Google 15%; generative AI services grew 165%, and Synergy named CoreWeave, OpenAI, Oracle and Anthropic among a faster-growing second tier.
historical · Q2 2026written 2026-10-07

How it makes money

Most money arrives as subscriptions and usage bills. Employers pay per worker each month for Microsoft 365, and Azure customers pay for every hour of computing they use. Together these cloud services brought in $214.4B in fiscal 2026, two-thirds of sales, and keep 66 cents of each dollar after the cost of running them.

What keeps it coming is that both are wired into how a company works, so the bills renew year after year.

The evidence under this - 4 claims
C01facthigh confidence
Microsoft sells cloud computing and AI services (Azure), Office and Microsoft 365 subscriptions, LinkedIn, Dynamics business software, Windows, Xbox and Bing advertising. Fiscal 2026 revenue was $331,839M: server products and cloud services $129,425M and Microsoft 365 Commercial $101,997M.
historical · FY2026written 2026-10-07
C03facthigh confidence
Microsoft Cloud revenue was $214.4B in fiscal 2026, up 27%, at a 66% gross margin. Azure and other cloud services grew 41%, Microsoft 365 Commercial cloud 17% on paid seats up 6%, Microsoft 365 Consumer cloud 28%, LinkedIn 11% and Dynamics 365 18%.
historical · FY2026written 2026-10-07
C04facthigh confidence
Fiscal 2026 segment operating income was $83,879M on $139,996M of revenue in Productivity and Business Processes, $56,972M on $137,791M (up 30%) in Intelligent Cloud, where cost of revenue rose 44%, and $14,386M on $54,052M (down 1%) in More Personal Computing.
against this

Intelligent Cloud's margin fell from 42.0% to 41.3% as cost of revenue grew faster than revenue, the first sign that the build's depreciation is reaching segment profit.

historical · FY2026written 2026-10-07
C33facthigh confidence
Per sales dollar from fiscal 2022 to 2026, sales and marketing fell from 11.0 to 8.0 cents, R&D from 12.4 to 10.7, admin from 3.0 to 2.4 and stock pay from 3.8 to 3.7, while cost of revenue rose from 31.6 to 32.1; operating margin rose from 42.1% to 46.8%. Capital spending rose from 12.0 to 34.9 cents.
against this

Capital spending is not an expense when paid: depreciation and amortisation were $38.5B in fiscal 2026 against $115.9B spent, so most of the build has yet to reach the margin.

historical · FY2022 to FY2026written 2026-10-07
Where the money comes from, stream by stream
StreamShare of sales (FY2026)How it earns it
Server products and cloud services39.0%Azure computing, storage and AI models, plus SQL Server, Windows Server and GitHub, sold by use or by licence.
Microsoft 365 Commercial30.7%Office apps, Exchange email, Teams, security and Copilot sold to employers per user a month.
Xbox6.6%Game content and services, including Activision titles and Game Pass, and consoles.
LinkedIn6.0%Recruiting tools, premium subscriptions, advertising and learning.
Windows and devices5.1%Windows licences sold through PC makers and to businesses, and Surface hardware.
Search advertising4.6%Bing and Microsoft Advertising, net of payments to partners.
Microsoft 365 Consumer2.8%Personal and Family subscriptions with Copilot.
Dynamics2.7%Business applications for finance, sales and service, mostly Dynamics 365 subscriptions.
Enterprise and partner services2.5%Support contracts and consulting.

Who runs it

Satya Nadella has run Microsoft since 2014 and chaired it since 2021, and Amy Hood has been finance chief since 2013. Together they own about 1.4 million shares; all directors and officers together own under 1%.

Nadella's pay rides on revenue and operating profit, and his shares on Azure, cloud, consumer and Xbox growth. Nothing pays on cash flow or on the return the data centres earn.

The evidence under this - 3 claims
C29facthigh confidence
Satya Nadella has been chief executive since 2014 and board chair since 2021; Amy Hood has been chief financial officer since 2013; Brad Smith is vice chair and president; Judson Althoff is chief executive of Microsoft's commercial business.
current state · 2025-10-21written 2026-10-07
C30facthigh confidence
Directors and executive officers as a group owned 2,279,620 shares, under 1%: Nadella 900,572 and Hood 465,746. Vanguard held 8.95% and BlackRock 7.30%.
current state · 2025-10-21written 2026-10-07
C31facthigh confidence
The chief executive's cash incentive is 70% formulaic, on revenue and operating income, and his stock is all performance awards weighted 35% to Azure revenue growth, 35% to Microsoft Cloud excluding Azure, 15% to consumer services and 15% to Xbox, adjusted 75% to 150% for shareholder return against the S&P 500. No measure is cash flow or return on capital.
current state · 2025-10-21written 2026-10-07
02

Why it wins, and who could beat it

Why customers come back

Leaving Microsoft 365 means moving every worker's files, email and sign-in, and retraining everyone. The European Commission's view was that Microsoft dominates office software for professional use, and it made Microsoft sell Office without Teams in Europe.

The proof is pricing. Paid seats grew only 6% last year, yet sales from them grew 17%, and in July 2026 Microsoft raised list prices again, by up to 17%, worldwide.

The evidence under this - 4 claims
C17facthigh confidence
The European Commission's preliminary view was that since at least April 2019 Microsoft had abused a dominant position in productivity software for professional use by tying Teams to Office. On 12 September 2025 it accepted commitments, for seven years, to sell suites without Teams at a lower price.
against this

The commitments avoided an infringement finding, so dominance is the Commission's preliminary view, not a ruling.

current state · 2025-09-12written 2026-10-07
C18factmedium confidence
Microsoft raised commercial Microsoft 365 prices worldwide from July 2026: Microsoft 365 E3 from $36 to $42 a user a month, E5 from $57 to $65, Office 365 E3 from $23 to $26 and Business Standard from $12.50 to $14.50. The last broad increase was in March 2022.
against this

The increases came with security and device-management tools added to the suites, so part of the rise is a larger bundle rather than the same product dearer.

current state · 2026-07-01written 2026-10-07
C19inferencemedium confidence
With Microsoft 365 Commercial cloud revenue up 17% on paid seats up 6% in fiscal 2026, revenue per seat rose about 10% a year before the July 2026 price rise, so customers pay more while the seat base barely grows.
derivedC03's revenue and seat growth, and C18's list prices
against this

Part of the revenue per seat is Copilot and E5 upgrades, which customers chose rather than had imposed.

historical · FY2026written 2026-10-07
C03facthigh confidence
Microsoft Cloud revenue was $214.4B in fiscal 2026, up 27%, at a 66% gross margin. Azure and other cloud services grew 41%, Microsoft 365 Commercial cloud 17% on paid seats up 6%, Microsoft 365 Consumer cloud 28%, LinkedIn 11% and Dynamics 365 18%.
historical · FY2026written 2026-10-07

The threat

The new attack comes from the AI labs Microsoft partners with. OpenAI and Anthropic now sell AI agents and coding tools straight to the same employers; Disney dropped GitHub Copilot for OpenAI's Codex. In the cloud, Amazon, Google, Oracle and newer AI clouds compete for the same capacity, and since April OpenAI may buy from any of them.

The evidence under this - 4 claims
C20factmedium confidence
Business Insider reported in July 2026 that Disney was dropping GitHub Copilot for OpenAI's Codex in the US while keeping Anthropic's Claude Enterprise and Cursor, and that Microsoft's Copilot lags ChatGPT and Claude in adoption.
against this

Management says GitHub Copilot has 50 million users and the GitHub platform had its best month ever after a pricing change (S03).

current state · 2026-07-29written 2026-10-07
C21inferencemedium confidence
The AI labs are Microsoft's suppliers, customers and rivals at once: OpenAI and Anthropic sell agents and coding tools straight to the enterprises that buy Microsoft 365 and GitHub, and both labs now run cloud capacity of their own that Synergy counts as rival providers, while both rent Azure.
against this

Microsoft resells both labs' models in its own products and Foundry, so it earns on their success as well as competing with it.

current state · 2026-10-07written 2026-10-07
C16facthigh confidence
Synergy Research measured cloud infrastructure services at $143.4B in Q2 2026, up 43%, and $500B over twelve months, with Amazon at 28%, Microsoft 20% and Google 15%; generative AI services grew 165%, and Synergy named CoreWeave, OpenAI, Oracle and Anthropic among a faster-growing second tier.
historical · Q2 2026written 2026-10-07
C09factmedium confidence
Under the agreement amended on April 27, 2026, OpenAI may sell its products through any cloud while Microsoft stays its primary provider; Microsoft's licence to OpenAI's models runs through 2032 but is no longer exclusive; Microsoft stopped paying OpenAI a revenue share, and OpenAI pays Microsoft a capped share through 2030.
against this

OpenAI's products still launch first on Azure unless Microsoft cannot or will not provide the capacity, so the primary position survives the amendment.

current state · 2026-04-29written 2026-10-07

The rivals: AMZN, GOOG, ORCL, CRWV, CRM, and 2 more that are private, in-house or listed abroad.

Who else does this, rival by rival
TickerRivalWhere it competesHow far alongPriced against it
AMZNAmazon Web ServicesPriced against it: YesAzure and server productsOn saleYes
GOOGGoogle Cloud and Google WorkspacePriced against it: YesAzure and server productsOn saleYes
ORCLOracle Cloud InfrastructurePriced against it: YesAzure and server productsOn saleYes
CRWVCoreWeave and other AI cloudsPriced against it: One segment onlyAzure and server productsOn saleOne segment only
PrivateOpenAI's ChatGPT Enterprise and CodexPriced against it: PrivateMicrosoft 365On salePrivate
PrivateAnthropic's Claude Enterprise and CoworkPriced against it: PrivateMicrosoft 365On salePrivate
CRMSalesforcePriced against it: One segment only-On saleOne segment only
03

How big it could get

How big this could get

Synergy Research measured the cloud market at $500B over the last twelve months, growing 43%, and Microsoft holds 20% of it. Nobody publishes the market in chips or hours, so that is a bound, not a sum.

Microsoft has $678B of signed contracts to draw on, about two and a half years of work, though a large part was OpenAI's at the last count.

The evidence under this - 3 claims
C16facthigh confidence
Synergy Research measured cloud infrastructure services at $143.4B in Q2 2026, up 43%, and $500B over twelve months, with Amazon at 28%, Microsoft 20% and Google 15%; generative AI services grew 165%, and Synergy named CoreWeave, OpenAI, Oracle and Anthropic among a faster-growing second tier.
historical · Q2 2026written 2026-10-07
C06facthigh confidence
Commercial remaining performance obligation was $677B at September 30, 2026, up 73% on a year earlier and $1B below the $678B at June 30, with a weighted average duration of about 2.3 years and about 30% to be recognized within twelve months; total remaining performance obligation was $683B.
against this

Much of the growth is OpenAI's commitment signed in fiscal 2026 (C10), so the headline overstates how broad the new demand is.

  1. 2026-10-28editedthe September 2026 quarter figure replaces June's
current state · 2026-09-30written 2026-10-07
C10factmedium confidence
Directions on Microsoft reported that OpenAI's Azure commitments were 45% of the $625B commercial backlog at December 31, 2025, that OpenAI had said it would buy $250B of Azure services, and that OpenAI had also signed capacity deals with Amazon and Google.
against this

Management says backlog excluding OpenAI grew 25% and that the June quarter's sequential growth came from other customers (C07).

current state · 2025-12-31written 2026-10-07

Who has signed

OpenAI is the one named buyer: it said it would buy $250B of Azure, and it paid Microsoft $24.1B last year and $10.0B in the latest quarter. Signed business was $677B in September, level with June; no filing splits it by customer.

The evidence under this - 4 claims
C06facthigh confidence
Commercial remaining performance obligation was $677B at September 30, 2026, up 73% on a year earlier and $1B below the $678B at June 30, with a weighted average duration of about 2.3 years and about 30% to be recognized within twelve months; total remaining performance obligation was $683B.
against this

Much of the growth is OpenAI's commitment signed in fiscal 2026 (C10), so the headline overstates how broad the new demand is.

  1. 2026-10-28editedthe September 2026 quarter figure replaces June's
current state · 2026-09-30written 2026-10-07
C07management claimmedium confidence
Management says commercial bookings grew 18% excluding OpenAI and 10% including it, that all of the June quarter's sequential growth in commercial remaining performance obligation came from customers other than frontier model companies, and that nearly 90% of fiscal 2026 cloud revenue came from outside them.
against this
  • The 10-K gives no split of the backlog by customer, so the share outside OpenAI cannot be checked from a filing.
  • OpenAI alone was $24.1B of fiscal 2026 revenue (C08), about 7% of the total and a larger share of Azure.
current state · 2026-07-29written 2026-10-07
C10factmedium confidence
Directions on Microsoft reported that OpenAI's Azure commitments were 45% of the $625B commercial backlog at December 31, 2025, that OpenAI had said it would buy $250B of Azure services, and that OpenAI had also signed capacity deals with Amazon and Google.
against this

Management says backlog excluding OpenAI grew 25% and that the June quarter's sequential growth came from other customers (C07).

current state · 2025-12-31written 2026-10-07
C08facthigh confidence
OpenAI is a related party held under the equity method, about 24% on an as-converted basis. Revenue from OpenAI, including its revenue-share payments, was $24.1B in fiscal 2026 and $10.0B in the September 2026 quarter, with $7.2B receivable at September 30 against $6.0B at June 30; Microsoft had funded $12.0B of $13.0B committed. The 10-K says AI partners are in some cases significant customers of Azure.
  1. 2026-10-28editedthe September 2026 quarter OpenAI related-party figures
current state · 2026-09-30written 2026-10-07
Where the growth is coming from, business by business

Where the growth is coming from

BusinessShare of revenueGrowth: last quarterLast half-yearLast yearShare in 3 years at its half-year rate
Azure and server products41%+33.1%+32.4%+31.5%54%
Microsoft 36534%+14.9%+16.2%+16.8%30%
Rest of the company25%+1.9%+2.8%+3.5%16%
Whole company100%+17.7%+18.0%+17.8%100%

On the filed split through 2026-06-30, if each business keeps its last half-year's growth, the company grows about 20% next year and 22% in year 3, against 17.8% over the last twelve months. Azure and server products grows fastest: it grows 32% against 10% for the rest, and would be 54% of revenue by then. A scenario, not a forecast: no business holds its rate.

How we read it: Azure and server products grow about three times faster than the rest and carry the case; the 3 rests on the blend because part of that growth is OpenAI's.

04

The results

The numbers

Is it growing?Steady

Sales grew 18% over the twelve months to Sep 2026, about the same pace as the 18% in the year to Jun 2026.

Jun 2022: $198BJun 2023: $212BJun 2024: $245BJun 2025: $282BJun 2026: $332B12 mo to Sep 2026: $346B$198B$346B
Is it profitable?Strong

Operating margin is 47%, up from 45% in the year to Jun 2024.

Jun 2022: 42%Jun 2023: 42%Jun 2024: 45%Jun 2025: 46%Jun 2026: 47%12 mo to Sep 2026: 47%42%47%
Does growth pay off?Pays off

Running costs take 21¢ of each sales dollar, down from 26¢ in the year to Jun 2022.

Jun 2022: 26¢Jun 2023: 27¢Jun 2024: 25¢Jun 2025: 23¢Jun 2026: 21¢12 mo to Sep 2026: 21¢26¢21¢
Does it earn good returns?Strong

Each dollar put into the business earns 29% a year after tax, down from 35% in the year to Jun 2022.

Jun 2022: 35%Jun 2023: 31%Jun 2024: 32%Jun 2025: 30%Jun 2026: 29%12 mo to Sep 2026: 29%35%29%
Is it making cash?Strong

It turned 17% of sales into free cash, $60.0B over the last twelve months, after spending 39% of sales on buildings and equipment.

Jun 2022: $65.1BJun 2023: $59.5BJun 2024: $74.1BJun 2025: $71.6BJun 2026: $67.0B12 mo to Sep 2026: $60.0B$65.1B$60.0B
Is the balance sheet safe?Net cash

It holds $64.5B of cash against $35.5B of debt, $29.0B more cash than it owes.

Jun 2022: $55.0BJun 2023: $64.0BJun 2024: $30.6BJun 2025: $51.4BJun 2026: $36.5B12 mo to Sep 2026: $29.0B$55.0B$29.0B
Are shares being diluted?Stable

The share count fell 1.2% in 4.3 years, and pay in shares costs 3.6% of sales.

Jun 2022: 7.54BJun 2023: 7.47BJun 2024: 7.47BJun 2025: 7.46BJun 2026: 7.45B12 mo to Sep 2026: 7.45B7.54B7.45B
All the numbers

Filed figures from the company's 10-K and 10-Q, read 2026-10-28. Fiscal years end in June.

Jun 2022Jun 2023Jun 2024Jun 2025Jun 202612 mo to Sep 2026
Size and growth
Sales$198B$212B$245B$282B$332B$346B
Sales growth+18%+6.9%+16%+15%+18%+18%
Profit
Gross margin68%69%70%69%68%68%
Operating margin42%42%45%46%47%47%
Net margin37%34%36%36%40%41%
What growth costs, per sales dollar
Research and development12%13%12%12%11%11%
Sales and marketing11%11%10.0%9.1%8.0%7.7%
General and admin3.0%3.6%3.1%2.6%2.4%2.3%
Pay in shares3.8%4.5%4.4%4.3%3.7%3.6%
Capital spending12%13%18%23%35%39%
Cash
Cash from operations$89.0B$87.6B$119B$136B$183B$196B
Free cash flow$65.1B$59.5B$74.1B$71.6B$67.0B$60.0B
Balance sheet
Cash and short-term investments$105B$111B$75.5B$94.6B$76.8B$64.5B
Debt$49.8B$47.2B$44.9B$43.2B$40.3B$35.5B
Net cash$55.0B$64.0B$30.6B$51.4B$36.5B$29.0B
Returns and shares
Return on capital35%31%32%30%29%29%
Shares (diluted)7.54B7.47B7.47B7.46B7.45B7.45B

What growth costs

Growth has got cheaper in the profit line: sales and marketing, research and admin all take less of each dollar than in 2022, so the operating margin rose to 46.8%. The cost that is climbing is building: data-centre spending went from 12 cents of each sales dollar to 35, and most of it has not yet been charged against profit.

The evidence under this - 3 claims
C33facthigh confidence
Per sales dollar from fiscal 2022 to 2026, sales and marketing fell from 11.0 to 8.0 cents, R&D from 12.4 to 10.7, admin from 3.0 to 2.4 and stock pay from 3.8 to 3.7, while cost of revenue rose from 31.6 to 32.1; operating margin rose from 42.1% to 46.8%. Capital spending rose from 12.0 to 34.9 cents.
against this

Capital spending is not an expense when paid: depreciation and amortisation were $38.5B in fiscal 2026 against $115.9B spent, so most of the build has yet to reach the margin.

historical · FY2022 to FY2026written 2026-10-07
C37inferencehigh confidence
Reported profit is running ahead of cash: operating income rose 42% from fiscal 2024 to 2026 while free cash flow fell 10%, because cash spent on the build was three times depreciation, and the longer asset lives from fiscal 2027 widen that gap further.
derivedC02, C11, C14 and C33
against this

The spending buys capacity against a signed backlog (C06), and management says the short-lived chips are bought against contracted demand (S03).

historical · FY2024 to FY2026written 2026-10-07
C11facthigh confidence
Fiscal 2026 operating cash flow was $182,935M and cash spent on property and equipment $115,948M, so free cash flow was about $67.0B against $71.6B in fiscal 2025 and $74.1B in fiscal 2024. Finance leases added to that: June quarter capital spending of $41B included $5.6B of them. In the September 2026 quarter cash from operations was $58.0B and cash spent on property and equipment $39.4B, so free cash flow was $18.6B against $25.7B a year earlier, and about $60.0B over twelve months.
  1. 2026-10-28editedthe September 2026 quarter cash flow statement
historical · FY2024 to FY2026written 2026-10-07

The last report (29 Jul)

Quarter ended June 2026, filed figures.

18%
Sales growth
against the same quarter a year earlier
8.6%
Growth from the quarter before
against 2.0% the quarter before that
45¢
Operating profit
per dollar of sales

In the quarter to September 2026, sales grew 19% to $92.3B and operating profit 21%. Azure grew 48%, above the 44% to 45% promised and up from 43% in June. Signed cloud business was $677B, level with June.

The cash side was weaker. Data centres took $39.4B, so free cash flow was $18.6B against $25.7B a year earlier, about $60.0B over twelve months. OpenAI paid $10.0B, and leases not yet started rose to $364.6B.

On the call, management guided Azure growth of 49% to 50% for December and about $170B of capital spending for the year, with free cash flow staying positive. Contracts outside OpenAI got no figure.

What it did to the thesisAzure and Office beat the bars we set, so the business half is stronger. The call raised the Azure guide but left the contracts outside OpenAI unanswered, so the view stays Neutral.

The quarter in detail

Sales growth from the previous quarter, filed figures.

Earnings per share $4.74 against $4.24 expected.

The evidence under this - 7 claims
C36facthigh confidence
September 2026 quarter revenue was $92.3B, up 19%; operating income $45.9B, up 21%; Azure and other cloud services grew 48% against 43% in the June quarter; adjusted EPS was $4.89 (June quarter $4.74); free cash flow was $18.6B against $19.6B in the June quarter.
  1. 2026-10-28editedthe September 2026 quarter replaces the June quarter
historical · Q4 FY2026written 2026-10-07
C06facthigh confidence
Commercial remaining performance obligation was $677B at September 30, 2026, up 73% on a year earlier and $1B below the $678B at June 30, with a weighted average duration of about 2.3 years and about 30% to be recognized within twelve months; total remaining performance obligation was $683B.
against this

Much of the growth is OpenAI's commitment signed in fiscal 2026 (C10), so the headline overstates how broad the new demand is.

  1. 2026-10-28editedthe September 2026 quarter figure replaces June's
current state · 2026-09-30written 2026-10-07
C08facthigh confidence
OpenAI is a related party held under the equity method, about 24% on an as-converted basis. Revenue from OpenAI, including its revenue-share payments, was $24.1B in fiscal 2026 and $10.0B in the September 2026 quarter, with $7.2B receivable at September 30 against $6.0B at June 30; Microsoft had funded $12.0B of $13.0B committed. The 10-K says AI partners are in some cases significant customers of Azure.
  1. 2026-10-28editedthe September 2026 quarter OpenAI related-party figures
current state · 2026-09-30written 2026-10-07
C11facthigh confidence
Fiscal 2026 operating cash flow was $182,935M and cash spent on property and equipment $115,948M, so free cash flow was about $67.0B against $71.6B in fiscal 2025 and $74.1B in fiscal 2024. Finance leases added to that: June quarter capital spending of $41B included $5.6B of them. In the September 2026 quarter cash from operations was $58.0B and cash spent on property and equipment $39.4B, so free cash flow was $18.6B against $25.7B a year earlier, and about $60.0B over twelve months.
  1. 2026-10-28editedthe September 2026 quarter cash flow statement
historical · FY2024 to FY2026written 2026-10-07
C12facthigh confidence
At June 30, 2026 contractual obligations were $743,821M, including $443,506M of lease payments and $194,060M of purchase commitments; leases not yet commenced, mainly datacenters, added $329.1B starting between fiscal 2027 and 2033. Finance lease liabilities were $66,594M. At September 30, 2026 leases not yet commenced were $364.6B, starting between fiscal 2027 and fiscal 2034.
  1. 2026-10-28editedleases not yet started grew in the September 2026 quarter
current state · 2026-06-30written 2026-10-07
C34management claimhigh confidence
Management guided the September 2026 quarter to revenue of $89.85B to $90.95B, Agents and Infra revenue of $75.15B to $75.75B, Azure growth of 44% to 45% in constant currency and capital spending above $50B. Result: revenue was $92.3B, Agents and Infra $76.8B and Azure grew 48%, each above the guide; capital spending was $45.2B including $7.4B of finance leases, below the guide of above $50B because third-party capacity deliveries slipped; cash spent on property and equipment was $39.4B.
against this

Azure grew 42% in the June quarter under the new definition (C05), so the guide asks for acceleration while capacity is the stated constraint.

  1. 2026-10-28editedthe guide was tested by the September 2026 results
  2. 2026-10-29editedQ1 fiscal 2027 call: capital spending $45.2B against a guide above $50B, finance leases $7.4B
forwardwritten 2026-10-07
C38management claimmedium confidence
On the September 2026 call management guided the December quarter to Azure growth of 49% to 50% in constant currency, Microsoft 365 commercial cloud growth of about 19%, revenue of $96.0B to $97.1B and capital spending above $50B, about $170B for the calendar year, with more in the second half as delayed third-party capacity arrives. It expects free cash flow to stay positive in fiscal 2027, will raise funding when attractive, and did not say how much of contract value is outside OpenAI.
against this

Management said the Azure guide leans on efficiency gains and on supply it counts on, and that some third-party contracts moved to the second half; it gave no figure for contract value outside OpenAI.

forwardwritten 2026-10-29
What management did with the money

Last year Microsoft paid $26.4B in dividends and $22.3B buying back shares, but its biggest use of cash by far was $115.9B of data centres. In the September quarter it returned $10.2B, spent $39.4B on data centres and signed leases not yet started now total $364.6B.

Insiders in 2026Q3: 33 purchases and 28 sales, from their Form 4 filings.

The evidence under this - 3 claims
C32facthigh confidence
In fiscal 2026 Microsoft repurchased 36M shares for $16.7B under its program, paid $22,271M in cash for repurchases in all and $26,445M in dividends, and had $40.6B left on its $60B program; the diluted share count fell from 7,540M in fiscal 2022 to 7,453M. In the September 2026 quarter it paid $4.4B for repurchases and $6.8B in dividends.
  1. 2026-10-28editedSeptember 2026 quarter capital returned
historical · FY2022 to FY2026written 2026-10-07
C11facthigh confidence
Fiscal 2026 operating cash flow was $182,935M and cash spent on property and equipment $115,948M, so free cash flow was about $67.0B against $71.6B in fiscal 2025 and $74.1B in fiscal 2024. Finance leases added to that: June quarter capital spending of $41B included $5.6B of them. In the September 2026 quarter cash from operations was $58.0B and cash spent on property and equipment $39.4B, so free cash flow was $18.6B against $25.7B a year earlier, and about $60.0B over twelve months.
  1. 2026-10-28editedthe September 2026 quarter cash flow statement
historical · FY2024 to FY2026written 2026-10-07
C12facthigh confidence
At June 30, 2026 contractual obligations were $743,821M, including $443,506M of lease payments and $194,060M of purchase commitments; leases not yet commenced, mainly datacenters, added $329.1B starting between fiscal 2027 and 2033. Finance lease liabilities were $66,594M. At September 30, 2026 leases not yet commenced were $364.6B, starting between fiscal 2027 and fiscal 2034.
  1. 2026-10-28editedleases not yet started grew in the September 2026 quarter
current state · 2026-06-30written 2026-10-07
05

The price, and where we disagree

In short. Fair. On profit the price is below its own normal and its rivals' middle, so it pays for the business roughly as management plans it; on cash it pays for spending that has not yet paid back.

Share price
$529.30
close,
Company value for each $1 of operating profit
25.9
rivals' middle 28.5

The shares fell more than a fifth in June 2026 on fears about the spending, then jumped 15.5% the day after the June-quarter report and have risen 50% from the low. The rise in six months came mostly from buyers paying more for each dollar of sales.

On 28 October Microsoft reported its first quarter under new segments: Azure grew 48% against the 44% to 45% promised, and the call guided December to 49% to 50%. The next test is the December quarter, due by the end of January.

The evidence under this - 5 claims
C22facthigh confidence
The shares closed at $529.30 on October 6, 2026, a market value of about $3.91T and enterprise value of about $4.01T by the vendor's count. Over 252 sessions the price rose 2.3%, sales per share 17.9% and the multiple fell 13.2%; over 126 sessions the price rose 42.2% and the multiple 30.8%.
current state · 2026-10-06written 2026-10-07
C28facthigh confidence
The shares peaked at $542.07 on October 28, 2025, fell 10.0% on January 29, 2026 after the December-quarter print, fell from $450.24 on May 29 to $352.83 on June 25, 2026, and rose 15.5% on July 30, 2026 after the June-quarter print.
historical · October 2025 to July 2026written 2026-10-07
C34management claimhigh confidence
Management guided the September 2026 quarter to revenue of $89.85B to $90.95B, Agents and Infra revenue of $75.15B to $75.75B, Azure growth of 44% to 45% in constant currency and capital spending above $50B. Result: revenue was $92.3B, Agents and Infra $76.8B and Azure grew 48%, each above the guide; capital spending was $45.2B including $7.4B of finance leases, below the guide of above $50B because third-party capacity deliveries slipped; cash spent on property and equipment was $39.4B.
against this

Azure grew 42% in the June quarter under the new definition (C05), so the guide asks for acceleration while capacity is the stated constraint.

  1. 2026-10-28editedthe guide was tested by the September 2026 results
  2. 2026-10-29editedQ1 fiscal 2027 call: capital spending $45.2B against a guide above $50B, finance leases $7.4B
forwardwritten 2026-10-07
C05facthigh confidence
Recast for fiscal 2027's two segments, Agents and Infra had fiscal 2026 revenue of $268,127M and operating income of $136,365M, and Devices and Consumer $63,712M and $18,872M. Azure revenue was $101,938M, up 40%, and 42% in the June quarter; Microsoft 365 cloud was $100,299M.
historical · FY2026written 2026-10-07
C38management claimmedium confidence
On the September 2026 call management guided the December quarter to Azure growth of 49% to 50% in constant currency, Microsoft 365 commercial cloud growth of about 19%, revenue of $96.0B to $97.1B and capital spending above $50B, about $170B for the calendar year, with more in the second half as delayed third-party capacity arrives. It expects free cash flow to stay positive in fiscal 2027, will raise funding when attractive, and did not say how much of contract value is outside OpenAI.
against this

Management said the Azure guide leans on efficiency gains and on supply it counts on, and that some third-party contracts moved to the second half; it gave no figure for contract value outside OpenAI.

forwardwritten 2026-10-29
How we read the multiple

Buyers pay about 26 times a year's operating profit for the whole company, less than for Alphabet or Amazon. But profit runs ahead of cash while the build lasts, so the cash a share earns is the stricter test.

  1. The price is about 58 times last year's free cash flow of $67.0B.
  2. Over six years buyers usually got about 2.4 cents of cash for each dollar paid; today it is 1.7 cents.
  3. Getting back there needs free cash flow up about 40%, to near $94B, while spending is still rising.

Against its own history. Cheaper than its own past on profit, dearer on cash. The two readings part because the data centres are paid for now and charged against profit over many years.

The evidence under this - 5 claims
C23facthigh confidence
The vendor puts enterprise value at 25.9 times trailing operating profit against 23.0 for Oracle, 28.5 for Alphabet and 31.0 for Amazon. Microsoft has the highest operating margin of the four, 46.8% against a median of 32.4%, and slower revenue growth, 17.8% against 20.1%.
against this

Each rival's multiple also prices a business Microsoft lacks, retail, search ads or database licences, so the comparison bounds the price rather than fixing it.

current state · 2026-10-07written 2026-10-07
C24facthigh confidence
On the vendor's six-year history the trailing P/E is 29.2 against a median of 34.2 and enterprise value to EBITDA 19.3 against 24.1, but the free cash flow yield is 1.7% against a median of 2.4%.
current state · 2026-10-07written 2026-10-07
C25estimatemedium confidence
At $3.91T the price is about 58 times fiscal 2026 free cash flow of $67.0B. For the yield to return to its 2.4% median at this price, free cash flow would have to rise about 40%, to near $94B, while capital spending is guided higher.
against this

On earnings the price is below its own median (C24), and consensus has fiscal 2027 EPS at $19.74, about 27 times (C26).

current state · 2026-10-06written 2026-10-07
C22facthigh confidence
The shares closed at $529.30 on October 6, 2026, a market value of about $3.91T and enterprise value of about $4.01T by the vendor's count. Over 252 sessions the price rose 2.3%, sales per share 17.9% and the multiple fell 13.2%; over 126 sessions the price rose 42.2% and the multiple 30.8%.
current state · 2026-10-06written 2026-10-07
C11facthigh confidence
Fiscal 2026 operating cash flow was $182,935M and cash spent on property and equipment $115,948M, so free cash flow was about $67.0B against $71.6B in fiscal 2025 and $74.1B in fiscal 2024. Finance leases added to that: June quarter capital spending of $41B included $5.6B of them. In the September 2026 quarter cash from operations was $58.0B and cash spent on property and equipment $39.4B, so free cash flow was $18.6B against $25.7B a year earlier, and about $60.0B over twelve months.
  1. 2026-10-28editedthe September 2026 quarter cash flow statement
historical · FY2024 to FY2026written 2026-10-07
Priced against its rivals

The competitors its own annual report names, each confirmed against the rival's filing. Measured on company value for each $1 of operating profit, cheapest first:

TickerCompanycompany value for each $1 of operating profit
ORCLOracle23.0×
MSFTMicrosoft25.9×
GOOGAlphabet28.5×
AMZNAmazon.com31.0×

The middle of the other 3 is 28.5. Microsoft Corporation is 2nd cheapest of 4.

Rivals' figures come from a data provider, so read the spread of the group rather than any single pair.

Below the middle of its rivals and above Oracle, with the best margins of the four, so on profit the price is not out of line with the group.

Where we disagree with the market

The market believes

Microsoft is the safest AI winner: Azure is speeding up, Copilot sells into a captive base, and the June sell-off was an overreaction.

We believe

The business is as strong as the market thinks, but its profit now runs well ahead of its cash, and the gap is widening.

Twice in 2026 the market sold Microsoft over the cost of its build, in January and June, and twice the next report answered with faster Azure growth. It did not answer on cash: free cash flow fell again, and $364.6B of leases are still to start.

The case against us is demand. Management says customers outside the AI labs drove all of the latest growth in signed contracts. If that holds, the spending fills quickly and the cash follows.

What analysts say, and the evidence
Analysts positive
96%
of 57, 1 Oct
Four months earlier
95%
of 57, 1 Jun
The evidence under this - 8 claims
C26facthigh confidence
Analysts were 96.5% positive across 57 on October 1, 2026 against 95.0% of 60 in February; the average target drifted up 4.2%; consensus fiscal 2027 EPS is $19.74; short interest was 0.9% of float at the September 15 settlement; the last nine prints beat the EPS estimate, the latest on October 28 at $4.89 against $4.72.
  1. 2026-10-28editedthe run of beats reached nine
current state · 2026-10-01written 2026-10-07
C22facthigh confidence
The shares closed at $529.30 on October 6, 2026, a market value of about $3.91T and enterprise value of about $4.01T by the vendor's count. Over 252 sessions the price rose 2.3%, sales per share 17.9% and the multiple fell 13.2%; over 126 sessions the price rose 42.2% and the multiple 30.8%.
current state · 2026-10-06written 2026-10-07
C28facthigh confidence
The shares peaked at $542.07 on October 28, 2025, fell 10.0% on January 29, 2026 after the December-quarter print, fell from $450.24 on May 29 to $352.83 on June 25, 2026, and rose 15.5% on July 30, 2026 after the June-quarter print.
historical · October 2025 to July 2026written 2026-10-07
C11facthigh confidence
Fiscal 2026 operating cash flow was $182,935M and cash spent on property and equipment $115,948M, so free cash flow was about $67.0B against $71.6B in fiscal 2025 and $74.1B in fiscal 2024. Finance leases added to that: June quarter capital spending of $41B included $5.6B of them. In the September 2026 quarter cash from operations was $58.0B and cash spent on property and equipment $39.4B, so free cash flow was $18.6B against $25.7B a year earlier, and about $60.0B over twelve months.
  1. 2026-10-28editedthe September 2026 quarter cash flow statement
historical · FY2024 to FY2026written 2026-10-07
C12facthigh confidence
At June 30, 2026 contractual obligations were $743,821M, including $443,506M of lease payments and $194,060M of purchase commitments; leases not yet commenced, mainly datacenters, added $329.1B starting between fiscal 2027 and 2033. Finance lease liabilities were $66,594M. At September 30, 2026 leases not yet commenced were $364.6B, starting between fiscal 2027 and fiscal 2034.
  1. 2026-10-28editedleases not yet started grew in the September 2026 quarter
current state · 2026-06-30written 2026-10-07
C37inferencehigh confidence
Reported profit is running ahead of cash: operating income rose 42% from fiscal 2024 to 2026 while free cash flow fell 10%, because cash spent on the build was three times depreciation, and the longer asset lives from fiscal 2027 widen that gap further.
derivedC02, C11, C14 and C33
against this

The spending buys capacity against a signed backlog (C06), and management says the short-lived chips are bought against contracted demand (S03).

historical · FY2024 to FY2026written 2026-10-07
C07management claimmedium confidence
Management says commercial bookings grew 18% excluding OpenAI and 10% including it, that all of the June quarter's sequential growth in commercial remaining performance obligation came from customers other than frontier model companies, and that nearly 90% of fiscal 2026 cloud revenue came from outside them.
against this
  • The 10-K gives no split of the backlog by customer, so the share outside OpenAI cannot be checked from a filing.
  • OpenAI alone was $24.1B of fiscal 2026 revenue (C08), about 7% of the total and a larger share of Azure.
current state · 2026-07-29written 2026-10-07
C05facthigh confidence
Recast for fiscal 2027's two segments, Agents and Infra had fiscal 2026 revenue of $268,127M and operating income of $136,365M, and Devices and Consumer $63,712M and $18,872M. Azure revenue was $101,938M, up 40%, and 42% in the June quarter; Microsoft 365 cloud was $100,299M.
historical · FY2026written 2026-10-07
06

What could go wrong, and how we would know

The risks

  • OpenAI moves its work. OpenAI was $24.1B of sales and about 45% of signed cloud contracts in January, and since April it may buy computing from any cloud.
  • AI labs sell around Office. If employers buy agents from OpenAI or Anthropic instead of Copilot, the price rises that carry Microsoft 365 get harder to push through.
  • The spending does not pay. $743.8B of obligations and $364.6B of leases not yet started are committed before the revenue that would repay them.
  • Profit flatters cash further. From fiscal 2027 data centres are written off over 25 years instead of 15, so reported profit will run further ahead of cash.
  • Regulators police the bundle. The European Commission called Microsoft dominant in office software; bundling Copilot could draw the same scrutiny Teams did.
The evidence under this - 8 claims
C08facthigh confidence
OpenAI is a related party held under the equity method, about 24% on an as-converted basis. Revenue from OpenAI, including its revenue-share payments, was $24.1B in fiscal 2026 and $10.0B in the September 2026 quarter, with $7.2B receivable at September 30 against $6.0B at June 30; Microsoft had funded $12.0B of $13.0B committed. The 10-K says AI partners are in some cases significant customers of Azure.
  1. 2026-10-28editedthe September 2026 quarter OpenAI related-party figures
current state · 2026-09-30written 2026-10-07
C09factmedium confidence
Under the agreement amended on April 27, 2026, OpenAI may sell its products through any cloud while Microsoft stays its primary provider; Microsoft's licence to OpenAI's models runs through 2032 but is no longer exclusive; Microsoft stopped paying OpenAI a revenue share, and OpenAI pays Microsoft a capped share through 2030.
against this

OpenAI's products still launch first on Azure unless Microsoft cannot or will not provide the capacity, so the primary position survives the amendment.

current state · 2026-04-29written 2026-10-07
C10factmedium confidence
Directions on Microsoft reported that OpenAI's Azure commitments were 45% of the $625B commercial backlog at December 31, 2025, that OpenAI had said it would buy $250B of Azure services, and that OpenAI had also signed capacity deals with Amazon and Google.
against this

Management says backlog excluding OpenAI grew 25% and that the June quarter's sequential growth came from other customers (C07).

current state · 2025-12-31written 2026-10-07
C20factmedium confidence
Business Insider reported in July 2026 that Disney was dropping GitHub Copilot for OpenAI's Codex in the US while keeping Anthropic's Claude Enterprise and Cursor, and that Microsoft's Copilot lags ChatGPT and Claude in adoption.
against this

Management says GitHub Copilot has 50 million users and the GitHub platform had its best month ever after a pricing change (S03).

current state · 2026-07-29written 2026-10-07
C21inferencemedium confidence
The AI labs are Microsoft's suppliers, customers and rivals at once: OpenAI and Anthropic sell agents and coding tools straight to the enterprises that buy Microsoft 365 and GitHub, and both labs now run cloud capacity of their own that Synergy counts as rival providers, while both rent Azure.
against this

Microsoft resells both labs' models in its own products and Foundry, so it earns on their success as well as competing with it.

current state · 2026-10-07written 2026-10-07
C12facthigh confidence
At June 30, 2026 contractual obligations were $743,821M, including $443,506M of lease payments and $194,060M of purchase commitments; leases not yet commenced, mainly datacenters, added $329.1B starting between fiscal 2027 and 2033. Finance lease liabilities were $66,594M. At September 30, 2026 leases not yet commenced were $364.6B, starting between fiscal 2027 and fiscal 2034.
  1. 2026-10-28editedleases not yet started grew in the September 2026 quarter
current state · 2026-06-30written 2026-10-07
C14management claimhigh confidence
Management guided fiscal 2027 to double-digit growth in revenue and operating income, operating margin down less than a point, capital spending up, free cash flow staying positive and a 20% tax rate; calendar 2026 capital spending of about $175B after a lease reclassification; and datacenter lives extended from 15 to 25 years, with a minimal benefit to fiscal 2027 operating income.
against this

Longer asset lives lower depreciation for every year after fiscal 2027, so reported profit will lead cash by more than it does today.

forwardwritten 2026-10-07
C17facthigh confidence
The European Commission's preliminary view was that since at least April 2019 Microsoft had abused a dominant position in productivity software for professional use by tying Teams to Office. On 12 September 2025 it accepted commitments, for seven years, to sell suites without Teams at a lower price.
against this

The commitments avoided an infringement finding, so dominance is the Commission's preliminary view, not a ruling.

current state · 2025-09-12written 2026-10-07
What we still do not know
  • How much of the $677B of signed cloud contracts is OpenAI's today; Microsoft gave a share in January and not since.
  • What cash a gigawatt of new data centres brings in; Microsoft gives no target for the return.
  • How many Microsoft 365 customers already pay OpenAI or Anthropic directly for AI agents.
The evidence under this - 4 claims
C10factmedium confidence
Directions on Microsoft reported that OpenAI's Azure commitments were 45% of the $625B commercial backlog at December 31, 2025, that OpenAI had said it would buy $250B of Azure services, and that OpenAI had also signed capacity deals with Amazon and Google.
against this

Management says backlog excluding OpenAI grew 25% and that the June quarter's sequential growth came from other customers (C07).

current state · 2025-12-31written 2026-10-07
C07management claimmedium confidence
Management says commercial bookings grew 18% excluding OpenAI and 10% including it, that all of the June quarter's sequential growth in commercial remaining performance obligation came from customers other than frontier model companies, and that nearly 90% of fiscal 2026 cloud revenue came from outside them.
against this
  • The 10-K gives no split of the backlog by customer, so the share outside OpenAI cannot be checked from a filing.
  • OpenAI alone was $24.1B of fiscal 2026 revenue (C08), about 7% of the total and a larger share of Azure.
current state · 2026-07-29written 2026-10-07
C14management claimhigh confidence
Management guided fiscal 2027 to double-digit growth in revenue and operating income, operating margin down less than a point, capital spending up, free cash flow staying positive and a 20% tax rate; calendar 2026 capital spending of about $175B after a lease reclassification; and datacenter lives extended from 15 to 25 years, with a minimal benefit to fiscal 2027 operating income.
against this

Longer asset lives lower depreciation for every year after fiscal 2027, so reported profit will lead cash by more than it does today.

forwardwritten 2026-10-07
C20factmedium confidence
Business Insider reported in July 2026 that Disney was dropping GitHub Copilot for OpenAI's Codex in the US while keeping Anthropic's Claude Enterprise and Cursor, and that Microsoft's Copilot lags ChatGPT and Claude in adoption.
against this

Management says GitHub Copilot has 50 million users and the GitHub platform had its best month ever after a pricing change (S03).

current state · 2026-07-29written 2026-10-07

What would change our view

  1. Neutral→AttractiveThe price falls to the cheapest rival's multiple

    It needs:

    • ○Buyers pay only 23 dollars for each dollar of yearly operating profit, debt included, as they do for Oracle, the cheapest rival.about ≈$470.03 today, 11% below the last close
  2. Neutral→AttractiveThe build pays for itself in cash

    It needs:

    • ○Free cash flow over twelve months climbs above $80B, from $60.0B, showing the build paying in cash.checked at the next results, due by 31 Jan
  3. Neutral→UnattractiveAzure or Microsoft 365 slows sharply

    It needs any of:

    • ○Azure's sales growth falls below 30%, from 48%.checked at the next results, due by 31 Jan
    • ○Growth in Microsoft 365 business subscriptions falls below 10%, from 17%.checked at the next results, due by 31 Jan
We would also be wrong if
  • OpenAI cuts or moves part of its Azure commitment, or signed contracts from other customers stop growing.
  • Free cash flow over twelve months falls below $50B.

What is coming

  • 8 December 2026 Annual shareholders' meeting and the 2026 proxy statement: Whether the pay plan adds a cash-flow or return-on-capital measure while spending doubles, and current insider ownership.
Every dated event ahead
  • 8 December 2026 Annual shareholders' meeting and the 2026 proxy statement: Whether the pay plan adds a cash-flow or return-on-capital measure while spending doubles, and current insider ownership.
  • 31 January 2027 December 2026 quarter results: Whether free cash flow holds near $18B a quarter as the leases begin and the useful-life change lands, and how the backlog moves without new OpenAI contracts.
  • 31 December 2030 OpenAI's capped revenue-share payments end: How much of the OpenAI revenue was the revenue share rather than Azure use.
Since we wrote this
Written
7 Oct
Price the thesis read
$529.30
6 Oct
  • 29 OctEarningsThe call guided Azure to 49% to 50%; Neutral heldManagement raised the Azure guide and kept free cash flow positive, but gave no figure for contracts outside OpenAI, so the view held.
  • 28 OctEarningsAzure grew 48%, beating the guide; cash flow weakerAzure and Microsoft 365 cleared our bars, but free cash flow fell to $18.6B and contracts were level at $677B, so Neutral held.
  • 26 OctNewsMicrosoft offers voluntary exits to about 60,000 staff; terms like standard severance. View heldVoluntary exit offer to about 60,000 employees.
  • 21 OctNewsOpenAI will sell models on Google Cloud, as its April Microsoft deal allows. View heldOpenAI models coming to Google Cloud.
  • 7 OctThesis writtenNeutral, medium convictionWritten three weeks before the September 2026 quarter, the first under the new segments, after the shares rose 50% from the June low to $529.30.

Also checked 6 times with nothing new to act on.

Sources 20

Where this came from

Sources - 20

Every claim above cites one of these, or states the reasoning that derived it. The quote is frozen at the date it was read: a link can rot, and an agent fetch returns a reading of a page rather than the page. Backs counts the whole claim ledger, so it can name a claim this page does not surface.

  1. S01primarycompany filing2026-07-29
    Item 1 (products, competition by class, workforce), risk factors on AI partners, revenue by product, segment results, Microsoft Cloud, OpenAI related-party note, cash flow, leases, commitments, debt, repurchases
    backsC01C02C03C04C06C08C11C12C13C21C23C24C32C33C35
  2. S02primarycompany release2026-07-29
    June quarter and full-year revenue, operating income, adjusted EPS, Microsoft Cloud, business-line growth
    backsC02C03C06C11C36
  3. S03primarytranscript2026-07-29
    Fiscal 2026 fourth-quarter earnings call transcript
    data/cache/transcripts/MSFT-2026Q4.json
    Copilot seats, capacity added, demand against supply, bookings excluding OpenAI, the share of cloud revenue outside frontier labs, fiscal 2027 and September-quarter guidance, the useful-life change, calendar 2026 capital spending
    we now have over 30 million paid Microsoft 365 Copilot seats
    backsC07C11C14C15C34C36
  4. S04primarycompany filing2026-09-02
    Agents and Infra and Devices and Consumer recast for fiscal 2026, Azure revenue as a figure, Microsoft 365 cloud, the September-quarter outlook on the new segments
    backsC05C34
  5. S05secondaryvendor data2026-10-07
    Research pack (FMP market tier and filed statements), frozen at content/MSFT/research-pack.json
    content/MSFT/research-pack.json
    price, market value, enterprise value, returns and their decomposition, the filed cohort's multiples, valuation history, consensus, estimates, short interest, earnings history, insider base rate, headcount series, daily closes
    backsC22C23C24C25C26C27C28C35
  6. S06primaryindustry data2026-07-30
    cloud infrastructure market size, growth and shares by provider; generative AI services growth; the fastest-growing second tier
    Q2’s worldwide market share was 28%, 20%, and 15%, respectively
    backsC16
  7. S07secondarynews2025-09-23
    the Commission's preliminary finding of dominance, the commitments accepted on 12 September 2025 and their seven-year term; the Commission's own press page renders only by script
    Microsoft had abused its dominant position in the market for Software-as-a-Service (SaaS) productivity applications for professional use
    backsC17
  8. S08secondarynews2025-12-09
    the July 2026 list price changes by suite, the March 2022 precedent, the 430 million users figure
    Microsoft 365 E3 will increase from $36 to $42, while Microsoft 365 E5 will rise from $57 to $65.
    backsC18
  9. S09secondarynews2026-04-29
    the April 2026 amendment: any cloud, primary provider, non-exclusive licence, revenue-share changes; OpenAI's own page refused the fetch
    Microsoft will retain a license to OpenAI intellectual property, including models and products, through 2032, but the license is now non-exclusive rather than exclusive.
    backsC09
  10. S10secondaryanalyst2026-04-28
    OpenAI's share of the December 2025 backlog, the $250B Azure purchase commitment, OpenAI's Amazon and Google deals, analysts' reading of the amendment
    Of this total, 45 percent was attributable to OpenAI’s Azure commitments over multiple years
    backsC09C10
  11. S11secondarynews2026-07-29
    a named customer replacing GitHub Copilot with OpenAI's Codex and keeping Claude and Cursor; Copilot's adoption against rivals
    The Mouse House is ditching Microsoft's GitHub Copilot and several other AI coding tools in August in the US
    backsC20
  12. S12primarycompany filing2025-10-21
    directors and executive officers, beneficial ownership, the compensation discussion and analysis: cash incentive and performance award metrics
    backsC29C30C31
  13. S13primarycompany filing2026-10-07
    open-market sales and purchases, the Rule 10b5-1 flag on each
    backsC27
  14. S14primaryregulator2026-09-15
    short interest in MSFT and its share of float
    backsC26
  15. S15primarycompany filing2026-02-06
    AWS on-demand computing sold to the same enterprises that buy Azure
    read, but no claim rests on it
  16. S16primarycompany filing2026-02-05
    Google Cloud and Workspace, rivals to Azure and Microsoft 365
    read, but no claim rests on it
  17. S17primarycompany filing2026-06-23
    Oracle Cloud Infrastructure's share of Oracle's cloud revenue; database and applications rivals to Azure and Dynamics
    read, but no claim rests on it
  18. S18primarycompany release2026-10-28
    revenue, operating income, Azure, Microsoft Cloud, Microsoft 365 and contract value for the September 2026 quarter
    backsC06C26C34C36
  19. S19primarycompany filing2026-10-28
    cash flow, balance sheet, OpenAI related-party figures, contract value and leases not yet started at September 30, 2026
    backsC06C08C11C12C13C32C34C36
  20. S20primarytranscript2026-10-28
    First quarter fiscal 2027 earnings call transcript (FMP), held 2026-10-28
    data/cache/transcripts/MSFT-2027Q1.json
    the December quarter guide, capital spending path, the finance-lease share of capital spending, why Azure beat, funding options; analysts from Morgan Stanley, UBS, Bernstein, Goldman Sachs, Jefferies, Stifel and Bank of America
    In Azure, we expect revenue growth of 49% to 50% in constant currency with continued efficiency gains across our CPU and GPU fleet
    backsC34C38
Rendered from content/MSFT/thesis.json · thesis reviewed 2026-10-29. This page explains a company; it does not say what to pay, when to buy or how much.