Microsoft added more than $400 billion in one day - Is it still a buy?
Stock pick saturday #7 - Microsoft
Each week on saturday I dive deeper in one company. Today episode 7 about Microsoft. You can read one of my recent episodes about Netflix here:
Stock pick saturday #4 - Netflix
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🏢 What Is Microsoft?
Microsoft doesn’t need any introduction for anybody. But most people think about Windows and Word if they think about the company. Just like thinking about Amazon with their online bookstore.
But nowadays Microsoft is built around three business models.
Business 1: Intelligent cloud
Intelligent cloud is getting more important and could be seen as the backbone of the global AI infrastructure. Everytime an individual or company is training an AI model, there is a good chance Microsoft is collecting a fee for this process.
Business 2: Productivity and business processes
The productiviy and business model is still very important for Microsoft. More than 1.5 billion people worldwide use it everyday on work. The development with Copilot result in acceleration in this segment.
Business 3: Personal computing
This segment is the legacy business for Microsoft. Almost everybody used Xbox, Windows and Bing in their life, which generated a lot of revenues for Microsoft. This 3rd business is no longer the growth engine for Microsoft, bus still generates a lot of money.
Q4 earnings:
The revenue for each segment, where 2026 revenues is compared with 2025.
Segment personal computing declined by 4% y/y, but intelligent cloud grow by an impressive 32%.
🌍 The Macro Context
Some people may think Microsoft has nothing to do with macro. But remember, we living through the largest infrstructure buildout in history of human history. Every company want to integrate AI into their operations to make it more efficient.
To integrate AI into their business, companies need computing power, software and infrastructure. Microsoft sells all three components.
Azure’s competitive moat creates the ability to support more than 10.000 AI models in an unified infrastructure.
In the current inflationary environment companies don’t stop investing in technology that creates the possiblity to reduce G&A costs.
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📊 The Fundamentals
💪 The Strengths
The enterprise AI infrastructure
If organizations have built the Azure’s infrastructure, it is technically complex to replace it for competitors. Microsoft and Open AI have closed a partnership. Till 2020 Microsoft will have exclusive access to frontier models because of this partnership.
Five quarters in a row beating estimates
Microsoft have currently more than $600 billion in revenue in the pipeline. Combined with five quarters of beating estimates makes Microsoft very strong, also compared to the competitors in the space.
Copilot is the fast growing business
More than 400 million people use Microsoft everyday. With adding Copilot for around $30/month on top of the system, this is a very capital-efficient growth strategy for Microsoft. Microsoft 365 Co pilot have reached already more than 30 million paid seats.
⚠️ The Weaknesses
$190 billion in capital expenditures
In 2026 Microsoft is spending around $190 billion. For the last quarter of $41 billion, this means a jump of 69% year over year. If the AI adoption slows down, or the ROI for this part will disappoint, the free cash flow of Microsoft will disappoint.
Azure faces competition from Amazon/Google
In the cloud segment, Amazon and Google intensify the competition for Microsoft. Amazon provides more than 100 models through Amazon Bedrock. Alphabet offers more than 200 models requiring the connection with Gemini.
Valuation overextended?
On 30th of July Microsoft added more than $400 billion in market cap in one single day. The stock rose 15% in one day. Currently Microsoft is trading around $500. 10% below the all time high. This is quite high compared to the geopolitical tensions and the overall economic situation in the United States.
In the following part I describe an extensive valuation in my personal built scorecard. I screen on different metrics to define if I think the company is worth to look at and eventually buy. I also share my technical analysis about the company.
