Parkev Tatevosian, CFA on $MSFT (Nov 5, 2026)

Microsoft reported revenues of $92.3 billion, an increase of 19% compared to the same quarter last year. But so far, Microsoft remains behind two of its peers in the field of ultra-large-scale cloud computing.

However, Microsoft invests in different categories than some of its peers, and its strategy is slightly different.

In fact, it is one of the few companies, indeed the only one among these four, that generates positive free cash flow with revenue growth approaching 20%. In addition, its operating income increased by 21% compared to the same period last year.

Typically, and historically, when Microsoft reports revenue growth of 19%, it achieves operating income growth of 30% or more, because the company's costs do not increase as much as its revenue increases in normal times.

But right now, they are investing and accelerating investments in artificial intelligence and enhancing their capabilities in this area, resulting in a profit growth to revenue growth ratio closer to one to one.

However, Microsoft remains a highly profitable company with operating profit margins exceeding 50%, which represents a slight year-on-year increase.

So, out of every $100 in sales, imagine you're pocketing $50 in profit. This is essentially what Microsoft is doing here. but it's a good approximation of the profitability at which this company operates on such a huge scale.

Microsoft's revenue would have been better if it weren't for the delays in providing some data center capacity. Their capital expenditures totaled $45.2 billion, as some capacity deliveries from third parties that they had anticipated in the first quarter were delayed.

Remember that Microsoft has more demand than supply, so once it builds or acquires this computing power, it can generate revenue from it. They already have hundreds of billions of dollars in backlogged orders.

There are many customers waiting in line to use this computing power.

Therefore, when a delay occurs, it delays revenues instead of generating them sooner.

Arguably, what is most impressive and positive about Microsoft in recent quarters is the company's free cash flow. While Microsoft remains in a positive position. In fact, in the most recent quarter that ended, they generated $58 billion in cash flow from operations, a 29% year-over-year increase.

If we calculate that on an annual basis, it would generate approximately $240 billion in cash flow from operations per year. Despite spending a lot, they still generate free cash flow of $18.6 billion.

This puts them ahead of their competitors, something investors appreciate, as the company takes a more cautious approach to the AI investment cycle rather than accelerating investments to the point where its free cash flow becomes negative.

I have said before that I do not understand the haste with which some of its competitors spend, to the point that they generate a substantially negative free cash flow. whether the best approach was to spend as much as possible and as quickly as possible, or whether Microsoft's approach was better by being more cautious and balanced;