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Microsoft Corporation - Common Stock
Our verdict on Microsoft Corporation - Common Stock isn’t the consensus take — see where we landed, and the one risk the bull case glosses over.
See the verdict — free →Does management do what it says?
Capital expenditures (additions to property and equipment) increased significantly by 30% year-over-year to $19.4 billion in the first quarter, reflecting accelerated investment in AI and cloud infrastructure. (2 exceeded across 2 tracked commitments)
“We will continue to invest in capital expenditures to support growth in our cloud offerings and our investments in AI infrastructure and training.”
Capital expenditures (additions to property and equipment) increased significantly, nearly doubling year-over-year for the quarter to support AI infrastructure. (1 exceeded across 1 tracked commitment)
“We expect capital expenditures to increase in coming years to support growth in our cloud offerings and our investments in AI infrastructure and training.”
See the full cited Management analysis of Microsoft Corporation - Common Stock
How durable is the business?
The moat remains exceptionally strong, with commercial remaining performance obligations (CRPO) growing to $375 billion, indicating deep enterprise integration. (1 expanding)
“Commercial remaining performance obligation increased 99% to $627 billion.”
The segment returned to growth (7%) and increased its revenue share to 19.4%, largely due to the full-year impact of the Activision Blizzard acquisition and Xbox Game Pass growth. (1 expanding)
“More Personal Computing Revenue increased $3.8 billion or 7% ... Gaming revenue increased $2.0 billion or 9% driven by growth in Xbox content and services”
See the full cited Business Model analysis of Microsoft Corporation - Common Stock
Where does growth come from?
Capital spending is accelerating significantly to build out AI capacity. Additions to property and equipment reached $10.95 billion this quarter, a 65% increase over the same quarter last year. (5 accelerating across 5 signals, 1 leading indicator)
“As of March 31, 2026, we had additional leases, primarily for datacenters, that had not yet commenced of $196.6 billion. These leases will commence between fiscal year 2026 and fiscal year 2031”
Azure growth is robust and accelerating in its impact from AI. AI services contributed 16 points to Azure's 33% growth in the current quarter, up from a 14-point contribution over the nine-month average. (2 accelerating across 2 signals)
“Commercial remaining performance obligation increased 99% to $627 billion.”
See the full cited Future Growth analysis of Microsoft Corporation - Common Stock
What could break the thesis?
The risk is intensifying as Microsoft Cloud gross margins decreased to 69% (from higher levels previously) specifically due to the costs of scaling AI infrastructure, despite efficiency gains in Azure. (4 intensifying, 1 high-severity)
“Microsoft Cloud gross margin percentage decreased to 66% driven by continued investments in AI infrastructure and growing AI product usage, offset in part by efficiency gains in Azure and Microsoft 365 Commercial cloud.”
The risk is intensifying as the cost of revenue for the Intelligent Cloud segment jumped 36% year-over-year, significantly outpacing the segment's 21% revenue growth. (4 intensifying, 1 high-severity)
“Cost of revenue increased $4.8 billion or 47% driven by investments in AI infrastructure to support growing customer demand and increased GitHub Copilot usage.”
See the full cited Risk analysis of Microsoft Corporation - Common Stock
Read the full thesis on Microsoft Corporation - Common Stock
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