The Market Will Wake Up to Microsoft’s Value Sooner or Later
Microsoft's stock barely moved over the past year while its earnings surged, and that gap between price and profit is exactly what makes one investor keep reaching for the buy button despite a capital spending bill that could shake the…
I keep adding to my Microsoft (NASDAQ:MSFT | MSFT Price Prediction) position. Over and over, the latest annual report gave me one more reason to do it again. Over the past year the stock rose just 3.77%. Over the same stretch, fiscal 2026 net income grew 31.34%. When earnings grow that much faster than the share price, the stock gets cheaper relative to the profits behind it.
Why I Keep Coming Back to Microsoft
Microsoft is part of how many large companies get their work done, with Azure running the infrastructure, Microsoft 365 running the office, and GitHub hosting the code. AI now sits on top of all three, and customers pay for it, while established software plus a fast-growing cloud business keeps pulling me back to the buy button.
Three Numbers That Keep Me Buying
First, growth at scale. Fiscal 2026 revenue reached $331.84 billion, up 17.79%, and Azure passed $100 billion in annual revenue for the first time. Azure grew 43% in the fourth quarter, and management forecast to roughly 45% in constant currency for the next one. Microsoft 365 Copilot passed 30 million paid seats.
Second, the backlog. Commercial remaining performance obligations reached $678 billion, up 84%. Management expects about 30% of that to turn into revenue within 12 months. I rarely get that much visibility into future sales.
Third, profitability and income. Operating margin stands at 46.78%, return on equity at 34.04%, with interest coverage of 50.88x. The quarterly dividend rose from $0.91 to $0.98, and Microsoft returned over $43 billion to shareholders in the fiscal year. At a P/E of 30, I think that is a fair price for this level of quality.
Why My Money Skips Amazon and Alphabet
Amazon (NASDAQ:AMZN) runs an excellent cloud business, and AWS grew 37% last quarter. Still, Amazon trades at a P/E of 36, pays no dividend, and its trailing free cash flow turned negative at $7.6 billion. An operating margin near 11% leaves me much less buffer.
Alphabet (NASDAQ:GOOGL) looks cheaper at a P/E of 15, and Google Cloud grew 82%. I respect both numbers. That low multiple, though, depends on a quarter that included a $99.03 billion gain on equity securities. Alphabet also posted negative free cash flow of $5.855 billion, suspended buybacks, and saw long-term debt rise from $46.5 billion to $98.2 billion. Microsoft produced $19.64 billion in free cash flow in its latest quarter and kept paying shareholders.
Capital Spending Could Bite Shareholders
The risk I take most seriously is the spending. Full-year capex hit $115.95 billion, up 79.62%, and fourth-quarter free cash flow fell 23.19%. OpenAI also accounts for much of the backlog: excluding OpenAI, commercial RPO grew only 25%. These investments could weigh on returns for years should AI demand cool.
My thesis still holds because about two-thirds of capex goes to short-lived CPUs and GPUs, which management says it can slow if demand changes. Roughly 90% of Microsoft Cloud revenue comes from customers outside frontier model companies, and the company plans to stay free-cash-flow positive next fiscal year.
All that Azure capex needs power, cooling, and networking from somebody, and we rounded up seven of the companies doing exactly that in a free report, right here.
What Keeps My Buy Button Active
Nadella put it simply: “Customer demand continues to exceed available capacity.” As long as that holds and the dividend keeps rising, I keep adding shares. I will keep collecting dividends and tracking Azure growth, capex, and free cash flow in the quarters ahead.
Contact [email protected] for any questions or corrections.
Alex Sirois is a financial writer with experience spanning both retail and institutional investing. He has written for InvestorPlace and held roles at BNY Mellon and Bernstein, giving him a perspective that bridges Main Street portfolios and Wall Street analysis.
Alex holds an MBA from George Washington University and has built his career across multiple industries, including e-commerce, education, and translation — a breadth of experience that informs how he breaks down complex financial topics for everyday investors. His writing is conversational, actionable, and grounded in long-term, buy-and-hold investing principles.
At 247 Wall St., Alex focuses on delivering analysis that is both accessible and useful, with a clear emphasis on helping readers make more informed decisions with their money.
