- Price
- $498.48 → $516.17(+3.5%)
- Discount
- 16.9% → 14.0%(−2.9 pts)
- Thesis
- The market discounts Microsoft plansmainly because of its record spending on AI data centerscenter spending. Microsoft plans to keep raising capital spending into fiscal 2027, and investorsafter spending about $41 billion in one quarter. Investors worry this spending will weigh on free cash flow for years before it pays off. ButFor the gap to close, Azure demand keepsrevenue growth must keep outrunning Microsoft's ability to buildnew data center capacity. Management saysThat would show the spending is buying revenue rather than just cost. Azure remains capacity-constrained even as its growth ratealready reached 43% in the June 2026 quarter. Management says Azure remains capacity-constrained, which points to aunmet demand shortfall rather than overspending. A 2025 restructuring of the OpenAI partnershipMicrosoft has also reduced Microsoft'sits dependence on one AI model supplier:partner. OpenAI committed to buy $250 billion of Azure services through 2032, and Microsoft now offers Anthropic's Claude models inside Copilot alongside OpenAI's models. As new data center capacity comes onlineIn September 2026, this backlog of constrained demand can convert into revenueMicrosoft revamped Copilot with new code-generation and ease the marketagentic AI tools. It also confirmed that Azure customers already use OpenAI's newest GPT-6 Astra model. Both are signs of AI products turning into paid, differentiated use rather than just cost. Microsoft reports fiscal Q1 2027 results on October 27, 2026. That report will show whether Azure growth and margins hold up as spending worrykeeps rising. If Azure keeps growing near its current pace through mid-2027, the discount can close over the next two to four quarters.
- Recent events
- 2026-09-25: Microsoft stock rose about 4% after Microsoft revamped Copilot with new code-generation and agentic AI tools, aimed at widening adoption and supporting premium pricing.
2026-09-04: CEO Satya Nadella confirmed that early Azure customers had already started using OpenAI's newly launched GPT-6 Astra model on the Azure platform.
2026-07-29: Microsoft reported Q4 fiscal 2026 results. Revenue was $90 billion, up 18% from last year. Azure revenue growth accelerated to 43%, and capital spending reached $41 billion for the quarter.
2025-10-28: OpenAI completed its restructuring into a public benefit corporation. Microsoft received a 27% stake, worth about $135 billion, and OpenAI committed to buy $250 billion of Azure cloud services through 2032.