Microsoft’s stock has fallen while its AI business expands rapidly. Azure growth reached 40% in the most recent quarter, and the AI business runs at about $37 billion annually, up 123% year over year. Commercial remaining performance obligations nearly doubled to $627 billion, indicating contracted future revenue already on the books. Revenue rose 18.3% year over year to $82.89 billion, and EPS of $4.27 beat expectations. Valuation has compressed to about a 25x P/E with strong operating margins and returns on equity. Risks include sharply higher capex of $30.88 billion in a quarter, a low free cash flow yield of 2.35%, and potential pressure if Azure growth falls below the high 30s.
"Microsoft spent $30.88 billion on capex in a single quarter, up 84.39% year over year. Investors worry whether that money compounds or depreciates. Free cash flow yield is a thin 2.35%, and the capex line keeps climbing. If Azure growth slips below the high 30s, the math on those data centers gets uncomfortable fast."
Read at 24/7 Wall St.
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