We came across a bullish thesis on Microsoft Corporation (MSFT) on Elliot’s Musings’ Substack by Elliot. In this article, we will summarize the bulls’ thesis on MSFT. Microsoft Corporation (MSFT)'s share was trading at $408.46 as of Nov 4^th. MSFT’s trailing and forward P/E were 33.89 and 31.15 respectively according to Yahoo Finance.

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Microsoft’s recent quarter showcased robust performance, with revenue reaching $65.6 billion, marking a 16% increase, largely driven by impressive gains in its Intelligent Cloud segment. This segment saw a $4.1 billion or 20% rise in revenue, with Azure and other cloud services contributing significantly to this growth. Azure revenue grew by 34%, benefiting from a 12-point contribution from AI services, although Microsoft does not break down growth from OpenAI versus other sources. Despite the rapid demand for AI and cloud services, Microsoft noted a slight expected slowdown to 31-32% constant currency growth in FY25 Q2, primarily due to capacity constraints and the absence of one-off revenue recognition from Q1.

Microsoft’s AI business is projected to surpass a $10 billion annual revenue run rate in FY25 Q2, making it the fastest-growing segment in the company’s history. Capital expenditure came in at $14.9 billion in cash terms, totaling $20 billion when finance leases are included. Half of this was allocated to long-term assets, such as buildings and land, which are expected to support cloud and AI expansion for over a decade. The remaining capital focused on acquiring CPUs and GPUs for servers to meet the immediate demand surge in AI services, highlighting Microsoft’s strategy to enhance capacity and support customer needs.

The company continues to show strong financial discipline, reallocating operating expenses to bolster capital expenditures, especially within cloud and AI infrastructure. Amy Hood emphasized Microsoft’s alignment with demand, signaling a gradual convergence between capex growth and revenue as the cloud infrastructure matures and economies of scale take effect. This alignment is expected to moderate future capex while sustaining revenue growth from cloud and AI offerings.

Positioned as a leader in enterprise cloud, Microsoft (MSFT) remains pivotal in the digital transformation wave and the widespread enterprise shift to cloud computing. It actively encourages migrations through incentives, particularly for clients with Enterprise License Agreements, and promotes hybrid architectures with Azure Stack, catering to organizations preferring a mix of on-premises and cloud solutions. Microsoft’s strategy has made it a top investment for nearly a decade, with continued income generation through call sales despite its valuation. Currently trading at about 40x CY25 FCF estimates, Microsoft’s strong margin profile and expected FCF margin of 35-40% by 2028 reflect its strategic focus. While its valuation remains elevated, the long-term growth potential in AI and cloud positions Microsoft as an entrenched leader, making a compelling case to hold and capitalize on its sustained enterprise dominance.