Parkev Tatevosian, CFA on $MSFT (Nov 4, 2026)
MSFT can keep generating significant free cash flow despite nearly $200 billion a year in AI investment because it prioritizes data centers over large-language-model development: completed data centers generate revenue immediately and customer backlog exceeds $500 billion, making this a less risky, more profitable path to revenue and profit growth; it added 24 data centers across five continents amid accelerating demand, and its Maia chip progress is exciting investors. Last quarter it outperformed Alphabet, with MSFT shares down about 1% versus Alphabet's 12% after results.
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I think one of the main reasons everyone is talking about Microsoft stock is that it is one of the Big Four technology companies that spends heavily on artificial intelligence, yet still generates free cash flow even after its massive investments of nearly $200 billion a year.
So, let's take a closer look at why Microsoft is able to do this, and its approach to artificial intelligence that allows its business model to continue generating significant free cash flow.
However, while Microsoft is not spending aggressively on developing large language models, it is spending heavily on building data centers and increasing its computing power. Because in this field, once a data center is built, it starts generating revenue, and they have a backlog of customer requests exceeding $500 billion for that computing power.
Thus, they see it as a less risky and more profitable way to achieve revenue growth and expand profits. For this reason, they do not hesitate to spend huge sums in this category.
They established 24 new data centers across five continents during the quarter, as they observed accelerating demand.
Another category that investors are interested in, and I am one of them as a shareholder in Microsoft, is developments in the field of chips. Microsoft is working on developing its own chips, such as central processing units (CPUs) and graphics processing units (GPUs), as an alternative to Nvidia.
The Maia 200 chip already delivers a 1.7x increase in code processing per watt across Teams and Copilot applications, and the next-generation Maia 300 chip will achieve further gains with a 40% increase in code processing per watt compared to leading graphics processing systems.
These are the developments that are exciting Microsoft stock investors, and their last quarter's performance was much better than that of their rival Alphabet, as we saw in the divergent stock price reaction.
Microsoft's stock fell by about 1% after the announcement of their results, while Alphabet's stock fell by about 12% after the announcement of their results.
What this channel has said about $MSFT
Parkev Tatevosian, CFA has 10 calls on this stock; only the adjacent ones are shown.