TMTB: Microsoft (MSFT) Recap, Thoughts, and Bull vs. Bear Debate

Thought I’d get this one out early while I work on the rest of the morning note…

MSFT +10%: Goldilocks print as Azure materially beat and raise; Co-pilot adoption inflected to 10M q/q adds vs buyside at 5M+, margins beat, and CY26 capex not increased as Satya and Amy did a good job talking up ROI. What’s not to like?

Key number here was Azure coming in at 43% for the q vs bogeys of 41-42% and guide at 45% vs. bogeys of 42% with demand continuing to exceed supply. Copilot added 10M seats and is now at 30M. To cut to the chase: we think this is an N&N inflection quarter (numbers & narraitve) and we think MSFT moves quickly to the top of the Megacap pecking order after being at the bottom and underperforming for a long time. We think Azure continues to accel in 2H of CY and could get close to an exit growth rate of 50% as Fairwater continue to perform well. We like the stock here and added last night.

We don’t mind buying a stock up on these inflection quarters - in fact, we prefer it. It sets an easy downside case of where the stock was before the print (-10% to the down). Buyside EPS likely moving to low 20s in FY27 and mid 20s in FY28. At 25x+ FY28 $25, that’s $625+ in our upside case with our base centered on 25x FY27 $22 = $550. So 30% up, 10% down in our base case. Yes we’re in a very skittish market environment for anything AI related, but we stick to our process: this sounds pretty good.

The other key number investors & AI semi investors are focused on is whether or not Capex was cut - it stayed flat. Details: