This Number Tells Me The Microsoft Data Center Selloff Is Excessive, Prompting Me to Buy
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I have added to my Microsoft (NASDAQ:MSFT | MSFT Price Prediction) position after every dip this year, and today’s drop sent me back to the numbers again. Shares fell 2.2% on Tuesday after Anthropic unveiled tools to rival Office. That came on top of the post-earnings drop from $532.60 at the filing to $521.91 one day later, as investors worried about data center spending.
One Number Answers the Capex Fear
Commercial remaining performance obligations (RPO) are revenue customers have already signed for but Microsoft has yet to recognize. That figure rose 73% to $677 billion. Fiscal 2026 capex totaled $115.95 billion. Wall Street treats the expansion like speculative cash burn.
I see the backlog as revenue that is already legally locked in, and the capex as the physical price of collecting it. Roughly 30% of RPO turns to revenue within 12 months, and the portion beyond that rose 98%. Management says “customer demand continues to exceed available supply.” Microsoft sells the infrastructure enterprises need to run AI, and those customers are waiting for capacity.
Three Receipts Behind the Bull Case
First, growth is speeding up. Azure revenue rose 48% to $33.165 billion, up from 40% two quarters earlier. Management guided to 49% to 50% constant-currency Azure growth next quarter.
Second, the business funds its own expansion. Operating cash flow reached $58.0 billion last quarter against capex of $39.37 billion. Operating margin stands at 46.78% and return on equity at 34.04%. CFO Amy Hood said Microsoft has not yet tapped the debt markets and expects to stay free cash flow positive in fiscal 2027.
Third, income compounds. The quarterly dividend rises to $0.98 from $0.91, after $0.46 in 2019. The yield is a modest 0.67%, but payments date back to 2003. EPS of $4.89 marked a sixth consecutive beat, and shares trade at 26 times forward earnings.
Where Amazon and Alphabet Fall Short of Microsoft
For Amazon (NASDAQ:AMZN), AWS grew 39%, yet the stock trades at 38 times earnings, carries a trailing free cash outflow of $42.4 billion, and pays no dividend.
Shares of Alphabet (NASDAQ:GOOGL) look cheaper at 13 times earnings, and Google Cloud grew 103%. Alphabet also posted free cash flow of negative $9.065 billion last quarter and raised $49.6 billion through equity and convertible preferred stock, diluting shareholders. Microsoft bought back $4.379 billion of stock in the same stretch.
What Could Hurt This Position
Capex keeps climbing. Management expects over $50 billion next quarter and roughly $170 billion for the calendar year (the power, cooling and networking suppliers soaking up that spend are the subject of a free report we put together here). Free cash flow was $18.6 billion last quarter, and about three-quarters of capex goes to short-lived chips that will need replacing. Anthropic moving onto Office territory also threatens a franchise growing 18%.
The backlog carries a weighted average duration of 2.3 years, so the return runs on a visible schedule. Microsoft’s Maia 200 chips deliver up to 1.7x more tokens per watt, which means each watt of capacity produces more output.
Why the Long-Term Case Keeps Building
Shares sit below the $559.15 52-week high, while the backlog, Azure growth and the dividend keep rising. Satya Nadella calls enterprise AI a “decade-long” opportunity. That decade-long horizon lines up with $677 billion in signed contracts already on the books.
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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.
