Schwab Network on $MSFT (Oct 29, 2026)

They generated revenues of $92.3 billion, an increase of 19%. We have seen growth in the Azure platform of nearly 50%. Both figures exceeded expectations. Could this be the clearest evidence yet that Microsoft's massive investments in AI infrastructure are translating into real revenue?

Yes, I think so. Azure's growth and outlook, as you mentioned, demonstrate continued demand. But what's really interesting about Microsoft is that its opportunities in artificial intelligence go beyond simply providing computing.

It can generate revenue from data sources, developer tools, applications , and all the things that customers need to actually implement artificial intelligence.

This gives Microsoft several ways to profit, whether customers buy Copilot or build their own applications on Azure.

So, I'm watching to see if these products make deployment easier and give customers a reason to increase their AI spending with Microsoft, to see if this growth will continue.

Azure is growing at a faster pace than Microsoft anticipated, with management now expecting it to accelerate by 49 to 50% this quarter. Your data shows that the net Azure Spending Intention Index is holding steady at 53, which is actually lower than last year.

Clearly, the market is reacting to Azure's outstanding performance. I think they, as you know, see this acceleration, and the proof is in the revenues. The demand is there, but we are still experiencing supply constraints.

Our data shows future spending intention, and Microsoft's spending intention has been very positive over the past few quarters. Therefore, we were not surprised by exceeding expectations.

I believe what we are seeing in the latest data , which is more closely linked to future projections, is continued strength. Their customer base remains very diverse, and their spending intention remains very strong, although it is experiencing some slight decline.

I think we are seeing that some customers who have increased their spending on Microsoft products may now be moving towards reducing their spending. We are still seeing an adoption rate five times higher , while the dropout rate is around 5% compared to only 1%.

So, I think what we're seeing in our data is a greater tendency for people who used to spend larger amounts on Microsoft products to cut back a little. But, you know, I think this is the situation in which we will see Microsoft more over the next 6 to 12 months.

I believe the data we are currently seeing is closely related to the growth and acceleration we are seeing in revenues and forecasts. Specifically, when we look at how they make money from AI, they rely on premium subscriptions and have usage-based offerings , such as GitHub Copilot, which is a very popular offering .

When we look at the opportunity these offers provide to increase revenue from existing customers, how big is that opportunity compared to relying on adding new users?

Well, Microsoft undoubtedly benefits from its existing relationships with other companies and its customers. So, I think this is one of its strengths. She also stated that the growth of its commercial cloud applications benefited from premium subscriptions and usage-based offerings, including GitHub and GitHub Copilot.

Therefore, it undoubtedly enjoys widespread popularity.

However, artificial intelligence continues to grow, and companies continue to demand more infrastructure and more capacity. Therefore, there is a golden opportunity. What's interesting is that Microsoft can charge for both access to artificial intelligence and the work consumed by customers.

Therefore, it has many opportunities with existing and new customers to support its growth.

Now, let's talk about capital expenditures. It came in slightly below expectations. She stated that this was partly due to the delayed arrival of external capacity, but she expects this number to rise soon.

In this current quarter, they are turning heavily to debt markets due to increased capital spending.

Do you have any concerns about this direction from Microsoft? Historically , they have been able to finance their massive investments, but we are still debating this, especially Alphabet today, with its free cash flow going negative in the second quarter, as well as Oracle, which entered the debate after yesterday's investor meeting, in addition to the ongoing debate about debt.

Does this change your risk assessment for Microsoft? No, I don't think so. I think Microsoft was probably the most conservative about resorting to debt markets and other innovative financing mechanisms.

They built their infrastructure primarily by relying on their enormous free cash flows. I think the market is signaling that while it has been receptive to giant companies spending a significant portion of their free cash flow on investing in AI infrastructure to drive revenue growth over the next few years , the limit they are setting is for that cash flow to become negative.

It is clear that Microsoft will maintain positive free cash flow for fiscal year 2027. There are no specific forecasts for fiscal year 2028, but I think their recourse to the debt markets is, in my opinion, an indication that they realize that a shift to negative free cash flow has not been well received in the market.

I think they are taking a relatively conservative approach , while striving to meet demand, and they have multiple opportunities to make a profit. They are making a profit by increasing adoption, and there is still plenty of room for that.

They profit from consumption, so as people's consumption increases , I have no real concerns about free cash flow. I think that, as you know, they have taken a relatively conservative approach compared to their peers , and I think they realized that achieving negative free cash flow has not been met with success among their peers, and this is a smart move to boost the huge capital they need through other means.

We saw a significant rise in the share price after the earnings announcement, but it is now declining as the market as a whole is down by about 1.5 %.