Microsoft Showed Me What I Needed to Know to Do What I Was Going to Do Anyway
Before Microsoft reported a single number this quarter, the decision was already made. Here is the thesis that keeps the buy button active even as capital spending doubles and cash reserves shrink.
I bought more Microsoft (NASDAQ:MSFT | MSFT Price Prediction) this week. I had decided to do it before the company reported a single number. The earnings report on October 28 showed enough good signs to make the decision easy, and it backed up the mid-to-long-term strategy I already believed in.
Here is my thesis in plain terms. Businesses already run on Microsoft software. Now Microsoft leases them the computing power to put AI on top of that software. That strategy shows up more clearly in the numbers each quarter, and each quarter I add shares.
Three Reasons I Keep Adding Shares
First, growth is speeding up, and at this size that is rare. Fiscal first-quarter revenue reached $92.28 billion, up 18.8%, ahead of the $90.75B consensus. Microsoft Cloud revenue hit $63.9 billion, with growth accelerating to 30%, and Azure revenue rose 48%. Non-GAAP EPS came in at $4.89 against a $4.72 consensus. That was the sixth consecutive EPS beat.
Second, the backlog. Commercial remaining performance obligations are revenue customers have signed for that Microsoft has yet to book. They rose 73% to $677 billion. CFO Amy Hood put it bluntly: “Customer demand continues to exceed available supply.” When customers are waiting in line, I want to own the company they are waiting for.
Third, quality and income. Microsoft runs a 46.78% operating margin and a 34.04% return on equity. Debt-to-equity stands at 0.29, and interest coverage is 50.88x. The quarterly dividend just rose to $0.98 from $0.91, up from $0.36 in 2016. The 0.67% yield looks small today. What I am really buying is the increase that keeps coming.
Valuation helps too. Fiscal 2026 net income rose 31.34%, yet the stock fell 1.3% over the past year and trades at about 29 times earnings. Profits went up while the price stood still, and that kind of gap tends to reward patient owners.
Why My Money Skips Alphabet and Amazon
Alphabet (NASDAQ:GOOGL) looks cheaper at about 13 times earnings. Those earnings got a lift from investment gains, including a $99.03 billion gain on equity securities in one quarter. Under that, I see third-quarter free cash flow of negative $9.065 billion, long-term debt that rose from $46.5 billion to $98.2 billion, and new share sales that reduce existing owners.
Amazon (NASDAQ:AMZN) pays no dividend and trades near 34 times earnings. It reported trailing free cash flow of negative $42.4 billion. AWS rose 39%, which is a strong number. Azure rose faster, and Microsoft pays me while I wait.
Spending Is the Risk I Watch Most
Capital expenditures reached $39.37B, up 102.99%, and management expects calendar-year capex of about $170 billion. Cash fell 29.70% to $20.28B. Fiscal 2026 free cash flow slipped 6.46% to $66.99B, and Microsoft just finalized terms on a bond sale. If AI demand cools, those data centers become an expensive burden. Microsoft itself warns that its cloud and AI investments may not achieve expected returns.
Cash and signed contracts back the spending, keeping my thesis intact. Operating cash flow rose 28.73% to $58.00B. The quarter still produced $18.6 billion of free cash flow, and Microsoft returned $10.2 billion to shareholders.
What Keeps the Buy Button Active
Satya Nadella told analysts that enterprise AI adoption “is a decade-long process.” I plan to own Microsoft through that whole decade, just as I owned it through the last one, when shares rose 896.35%. I was going to buy anyway, and this quarter gave me the numbers to back it up.
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.
