- Company name
- Microsoft
- Sector
- Enterprise software & cloud computing
- About
- Microsoft sells software and cloud computing services to businesses and consumers. Its Azure platform rents computing power, storage, and AI tools to companies that need to run applications or train AI models. Its Microsoft 365 suite sells productivity software like Word and Excel, and Copilot adds an AI assistant on top of that suite. Microsoft also owns Windows, LinkedIn, GitHub, and Xbox, and it holds a large stake in OpenAI.
- Thesis
- The market discounts Microsoft mainly because of its record AI data center spending. Capital spending, including finance leases, was $41 billion in the June 2026 quarter, and Microsoft guided more than $50 billion for the September 2026 quarter. Investors fear that this spending will hold down free cash flow for years before it pays back. For the gap to close, Azure revenue growth must keep pace with the new data center capacity. That would show that the spending buys revenue and not only cost. Azure growth was 43% in the June 2026 quarter, For the September 2026 quarter, management guided Azure growth of 44% to 45% in constant currency, under a new and narrower Azure definition. Management says that Azure capacity is still smaller than demand. Microsoft also depends less on one AI partner. OpenAI contracted to buy an additional $250 billion of Azure services, and Copilot now offers Anthropic's Claude models together with OpenAI's models. In September 2026, Microsoft added new coding and agent tools to Copilot, and Azure customers started to use OpenAI's new GPT-6 Astra model. These are signs that AI products bring paid use and not only cost. Microsoft will report fiscal Q1 2027 results on October 28, 2026. That report will show whether Azure growth and margins hold as spending increases. If Azure keeps growing near its current pace through mid-2027, the gap can close over the next two to four quarters.
- Risks
- Microsoft plans to keep raising capital spending into fiscal 2027, after spending about $41 billion in one quarter on data centers. If Azure demand growth slows before this spending pays off, margins and free cash flow will suffer.
Microsoft accounts for its OpenAI stake in a way that pulls OpenAI's swings between profit and loss directly into Microsoft's own reported net income each quarter. This adds volatility to Microsoft's earnings that has little to do with its core software and cloud business.
Amazon Web Services and Google Cloud are also spending heavily on AI data centers, and compete directly with Azure for the same enterprise AI workloads. A shift in market share toward either competitor would slow Azure's growth rate.
- Balance sheet
- Cash: $76.8B
Debt: $46.1B
Net cash: $30.7B
Interest cover: 50×
Debt due within 12 months: $9.3B
Ratings: S&P AAA, Moody's Aaa (stable outlook)
Microsoft has the highest credit ratings, and its bond debt is small. It pays for much of its data center build-out through leases, not bonds, and these leases fix a large part of future costs, even if AI demand does not hold. Debt is the face value of senior unsecured notes at June 30, 2026, and the amount due within 12 months is for the year to June 2027. Moody's affirmed its rating on August 21, 2026. Moody's expects that free cash flow after dividends will be slightly negative in fiscal 2027 and 2028, about $4 billion in total, because of the high capital spending. Microsoft issued no new bonds in fiscal 2026. Finance lease liabilities rose to $66.6 billion from $46.2 billion a year earlier, and operating lease liabilities were $21.9 billion. Leases that had not started yet added $329.1 billion of future commitments. Interest cover is for fiscal 2026, and most of that interest now comes from finance leases. Operating cash flow of $182.9 billion paid for capital expenditure of $115.9 billion, dividends of $26.4 billion and buybacks of $22.3 billion. The balance sheet gives room to keep spending and returning cash.
As of 2026-06-30.
- Checkpoints
- Oct 28, 2026: Fiscal Q1 2027 results: Azure growth versus capex. Pending. Watch: Azure growth near the guided 44% to 45% in constant currency, under the new Azure definition, with stable cloud margins passes; a clear Azure slowdown while capex keeps rising fails.
Jan 2027 (estimate): Fiscal Q2 2027 results: Copilot uptake and Azure capacity. Pending. Watch: Azure growth that holds near its current pace and rising paid Copilot use pass; slower Azure growth with no sign of new capacity filling fails.
- Recent events
- 2026-10-07: Microsoft confirmed that it will report fiscal Q1 2027 results after the market closes on October 28, 2026.
2026-10-01: Microsoft said Ryan Roslansky, head of the Office and Teams group and former LinkedIn CEO, will leave the company at the end of 2026. Office and Teams now report to the Copilot, Agents and Platform organization of Charles Lamanna.
2026-09-25: Microsoft added new coding tools and an agent that works without stops to Copilot. The stock rose about 3.7% that day, to its highest close of 2026.
2026-09-15: Microsoft increased its quarterly dividend by 8%, to $0.98 per share. Microsoft will pay it on December 10, 2026.
2026-09-04: CEO Satya Nadella said that early Azure customers already use OpenAI's new GPT-6 Astra model. On September 3, Microsoft started to offer the model on its Foundry platform through a limited access program.
2026-09-02: Microsoft changed how it reports its results, starting in fiscal 2027. It now has two segments, Agents and Infra, and Devices and Consumer. Azure revenue no longer includes GitHub cloud, Security Copilot and Healthcare cloud. Under the new definition, Azure revenue was $101.9 billion in fiscal 2026 and grew 42% in the June 2026 quarter.
2026-08-21: Moody's kept Microsoft's Aaa credit rating with a stable outlook.
2026-07-29: Microsoft reported Q4 fiscal 2026 results. Revenue was $90.0 billion, up 18% from last year. Azure revenue growth increased to 43%. Capital spending, including finance leases, was $41 billion for the quarter. For the September 2026 quarter, Microsoft guided Azure growth of about 45% in constant currency and capital spending of more than $50 billion.
2025-10-28: OpenAI completed its restructuring into a public benefit corporation. Microsoft received a stake of about 27%, worth about $135 billion. OpenAI contracted to buy an additional $250 billion of Azure cloud services.