$MSFT · Jose Najarro Stocks · 2026-10-29

Now, I want to move on to talking about Microsoft because its shares have already risen after trading hours. One of the main things is that they are finally seeing an acceleration in Azure's growth, aren't they?

During the four quarters prior to this, Azure's growth was 39%, 38%, 39%, and 42%. In this quarter, it grew by 48% year-on-year. They predicted that growth for the next quarter would range between 49% and 50% at constant exchange rates.

So, you are experiencing a kind of re-acceleration in Azure. What's interesting is that they exceeded earnings expectations, and I think the market was expecting Azure to grow by around 44%.

They have surpassed these figures despite facing some delays, haven't they?

They mentioned a delay in the arrival of some third-party graphics processing units (GPUs) that were expected to arrive this quarter. This also extends to the second quarter. Most of these graphics processing units will likely arrive in the second half of the current fiscal year.

For them, the second half of the current fiscal year corresponds to the first and second quarters of the 2027 calendar year.

So, even without this computing power available when needed, they were able to exceed expectations and achieve strong growth. The main reason is that they have achieved efficiency gains across their GPU clusters, allowing them to allocate additional capacity to customers.

They have also benefited from good token prices this quarter, something they say is very volatile. But these two reasons were strong enough to help exceed expectations and predict a strong quarter in the coming period as well.

Incredibly, Microsoft is one of the few companies—indeed, I believe the only one among the "Big Seven" excluding Nvidia and Apple—that has positive free cash flow, and it is the only one among the giant cloud computing companies to achieve positive free cash flow.

So, Microsoft is the only one that stands out here with strong cash flow and free cash flow, and that's very exciting. Well, I don't think the market is just rewarding her for that, but it makes other players look bad, doesn't it?

Because he is asking: "How can you lose money in free cash flow when Microsoft is growing here by 50%?"

Here, Microsoft stands at around $18 billion. Now, they mentioned that one of the reasons was due to some of those delays, didn't they? Those delays actually increased free cash flow because some capital expenditures that were expected to be used this year were carried over to later in the year.

But they have now stated that for fiscal year 2027, they expect capital expenditures to exceed approximately $50 billion, right? Most importantly, they stated that for the second half of fiscal year 2027, i.e., the January and March-April quarters, they will see an acceleration in the second half.

So, let's put that in a mathematical framework, shall we? Currently, for the calendar year 2026, they are now expecting $170 billion in capital expenditures because some of the spending has been deferred to a later date.

For the calendar year 2027, which is a combination of the fiscal years 2027 and 2028 for them, I know it's a bit strange. If you're telling me that the calendar quarter will reach more than $50 billion.

This tells me that if you accelerate in the second half, the January quarter will be larger than $50 billion. Therefore, Microsoft is already expected to spend between $225 billion and $250 billion in capital expenditures in the next calendar year, 2027.

This is very exciting for the rest of the semiconductor industry. As for me, I wonder if they will still achieve positive free cash flow after all that.