$MSFT · Dividendology · 2026-10-30

Microsoft stock has released its latest quarterly earnings report. I'll have to see what impact this has on my personal portfolio because Microsoft is a big investment of mine.

But we will go deeper and see what the valuation is like, what their capital expenditure (CapEx) is like,

why the market is reacting so differently to Microsoft's rise of about 5% in the last month,

Now, if we look at Microsoft over the past year, it appears that they have been fairly stable, but there has been a lot of volatility in between. About a year ago, they were trading at $541 each share. We saw the share price drop to around $350.

This was a time when I was buying shares for the first time in many years , and it has certainly paid off quite well so far. In the last 6 months, they have grown by about 24.5% and in the last month alone, they have grown by about 5%.

To begin with, we can see that Microsoft achieved higher revenue and profits than they expected.

Non-GAAP EPS for the first quarter was 4.89, about 17 cents higher than expectations. Meanwhile, revenue, which was up 18.8% from last year, was about $1.54 billion higher than expected.

So, yes, they have done well in every area of income. but the truth is, that's not the main reason for the market's different reaction to Microsoft and Google's earnings reports.

This is the key difference between Microsoft's stock and other hyperscalers.

Actually, in 2026, yes, it was a little bit lower than 2024 and 2025 , but the free cash flow was about 67 billion.

We can see that capex spending is increasing significantly, but operating cash flow is also increasing quite rapidly between 2025 and 2026. In their most recent quarterly earnings report, Microsoft's free cash flow was $18.6 billion.

Microsoft is still in a very strong position compared to its competitors and has maintained positive free cash flow. Remember, when we look at capex spending and Microsoft's future plans, it appears that capex spending for 2026 was around $116 billion.

It will reach $194 to $195 billion by 2027, and CapEx spending will peak at around $253 billion in 2029.

So, can Microsoft remain free cash flow positive? Ultimately, this is a huge question.

but for Microsoft, it's only $54,000. The market much prefers Microsoft's financials over their hyperscale counterparts. Microsoft is now in the best position in terms of risk-reward ratio in this sector.

So, yes, Capex spending will double from current levels, but there's an important caveat here. They will remain free cash flow positive, and in fact, 2027 will be their lowest free cash flow year.

"Due to our strong business performance, we expect to remain free cash flow positive in fiscal 2027," said Microsoft Chief Financial Officer Amy Hood.

However, in addition to this, he made an interesting comment. "To supplement the money earned from the business and to maintain financial flexibility, we will use additional funding sources when we feel it is profitable."

So , is Microsoft entering the debt market? The short answer is yes. Microsoft has announced that it plans to sell $25 billion in US investment-grade bonds for the first time since 2017.

That is, they are issuing loans again after almost 10 years. 25 billion, which is still significantly lower than the debt issued by their peers. And as we mentioned, the market likes Microsoft's debt much more than their peers.

Now, you might be wondering, is their capital expenditure (CapEx) low because of lack of demand? Are other companies in high demand? Not based on what they said on the earnings call.

They said customer demand continues to exceed supply.

This is why Microsoft has done so well in the last 6 months. notice their growth in various business sectors. Microsoft Azure grew 48% year-over-year. Microsoft 365 Commercial Cloud and Consumer Cloud both grew 17%.

Commercial Residual Performance Obligation (RPO) increased by 73%.

So, again, the demand is definitely there. It already exists. Microsoft Cloud grew by 30%. So, is Microsoft attractive at the current price ? If we look at the PE multiple , they are trading below their five-year average , which is about 29.4 times earnings.

Currently, they are worth about 26 times earnings.

Remember, just a few months ago it had dropped to 19 times earnings. It's surprising to think that this was the cheapest price in the last five years. But of course, that doesn't tell the full picture , because at the same time they are at one of their most expensive price-to-cash-flow valuations.

If we look again at Seeking Alpha, you will see that the forward PE multiple is 11% below their five-year average. Even on a GAAP basis, it's down about 11%.

So, if we look at it from a sensitivity analysis perspective, Microsoft's EPS forecast for 2030 is around 19.94%. Let's assume they will actually achieve that. They will meet analysts' EPS forecasts and we assume that the PE multiple will continue to decline further on a trailing 12-month basis, despite a 15% decline over the past 10 years.

Maybe it will drop to 23 or 22 times the income. You will still see future returns through 2030. Competitive profits are broadly in line with historical market averages, perhaps slightly higher if dividends are added.

In that case, large multiple compressions are also included. If they still trade near the current multiple, future profits will exceed historical market averages. And if they return to near the average values of the last decade, you can expect huge profits.

That's exactly where Microsoft is currently positioned. So, Microsoft is now one of the most attractive stocks in the AI hyperscaler space, in terms of risk and reward.

They continue to be free cash flow positive. Capex or capital expenditure is not very harmful for them. And yes, they are finally turning to the debt markets a little bit now, but they are not forced to do so.

This is providing them with financial flexibility.

So, considering the turnaround in the last few months , Microsoft has performed somewhat better in the last five years.

It will be interesting to see how the next 5 years play out , but again, this is a stock that I have in my personal portfolio. This is one of my biggest personal investments and it will remain that way.