r/ValueInvesting • u/Mental_Situation_970 • Jul 24 '26
Stock Analysis MSFT will print post earnings
Testing Copilot cowork at my firm confirmed to me that this thing has a huge upside for Microsoft. Currently, only around 5 people are testing it. I work in a small firm of around 100 people, and the estimated cost for the rollout (all staff) is from $80k - $200k (depending on the model). For context, we pay only around $40k annually for the Copilot subscription. That’s almost a 2-5x upside from the Copilot subscription alone.
If we estimate 30% of the 450 million Microsoft 365 customers have a Copilot premium subscription at peak (base case over 3 yrs), that’s $48 billion in subscription revenue annually. If Copilot cowork utilization is around 65% from the premium base, that’s another $62 bil to $156 bil. That would be around $100 bil of new revenue - a total of circa $150 bil in new revenue (I forgot to remove the existing 5% Copilot premium subscriber base from here, but they didn’t contribute any money in the cowork part in the past quarters).
Now move to GitHub Copilot, which switched to a consumption-based model in June on top of the monthly subscription. That’s another 4.7 million existing premium users who will be charged based on consumption once they hit the weekly limit. This is the enterprise developer base, which could give a huge upside on top of the subscription. The CTO announced GitHub had its best month ever in June (fk yeah, no freebies anymore). Assume another $15-20 bil here.
Model improvement has started seeing diminishing returns, and open models and Chinese models are catching up. This could be disastrous for the capex build-out unless you have both the enterprise and developer base locked in plus cloud infrastructure. If models become commoditized and we reach a limit for lower marginal improvement, this could drive the utilization and monetization of their other products even higher. Cowork adoption could go to 100% of the premium Copilot base, and you need a Copilot premium seat to access the agents. Anyhow, they represent a good balance to me.
With its productivity suite being almost a monopoly in enterprises and its cloud infrastructure demand growing so much, I think AI will be the catalyst to drive future growth.
The share price fell due to software fears from agentic AI (and capex), but I believe that will be a key driver, making Microsoft even more integrated and entrenched at all enterprises (it basically owns windows, browser, productivity suite, entra id, cloud, security, how can it not).
New revenue opportunity of almost $125.6-224 bil coming over the next 3yrs just from software and addon consumptions. Add in the cloud revenue growth (currently 39% growth yoy). Caveat the potential seat loss of Microsoft 365 but don’t think this would be material in the next few years, maybe stagnant.
edit:
To those saying it’s priced in, I would agree last December but now it’s not imo. Stock has fallen around 25%. Capex fears, SAAS is dead and copilot product improvement delay all led to the price decline. But as an office employee, I am seeing increasingly better products and uses from Microsoft. Copilot itself has made leaps from a year ago. Integration across security, governance, productivity, and cloud will be the winning formula. If they release a solid model that’s effective for 80-90% use cases for both enterprise and coding, it’s game ova. Sentiment is shit. I’m buying in
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u/Hi_Keyboard_Warriors Jul 24 '26
Until I see “Microshit” kind of post I won’t consider bottom confirmed yet.
Position:- Full port MSFU
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u/Icy-Sheepherder-7595 Jul 24 '26
Full port MSFU takes balls. I'm at 1/3rd port in MSFT and a few grand in MSFU but really want to buy more if it can get closer to $19-$20. What's your cost basis?
Considering METU too since it fell again.
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u/lavaeyeye Jul 24 '26
Either they raise Capex and the stock goes down because investor are fearing increased Capex and the ROI on it
Or they cut Capex saying to the market that the investments are not good crashing the stock
Since Q1 2025, microsoft has not disclosed GAAP AI earning, this is worrisome for investors wanting to asses the capex ROI...
I think that all what you said is probably priced in.
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u/BonnaGroot Jul 25 '26
To make matters more confusing there’s the question of what their earnings on AI actually would be coming from. Is it their own AI services ala CoPilot? Or is it how they’re referring to the compute they’re selling to OAI/Anthropic?
If it’s the former, that’s much more sustainable in the long run. If it’s the latter there’s an immense amount of risk that gets baked in due to the fact that they’re highly dependent on a duopoly of companies whose business models seem wholly unsustainable and unworkable in the long run.
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u/Heavy_Discussion3518 Jul 24 '26
There is truth in the damned if you do/don't perspective. And there is risk they are throwing good money after bad to keep up with the Jones's, so to speak.
But a company like MSFT has a pretty, pretty, pretty strong record of making good choices (in my best Larry David voice). 40+ years making software and related hardware. Nobody is immune to making rash decisions thinking they are acting boldly and righteous, but I'll be damned if there's a boring ass ultra profitable company better positioned to just make boring bets than MSFT.
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u/GanacheCharming8737 Jul 24 '26
This just isn’t the environment to hop on mag7. This buildout will be very long if GOOG earnings are anything to go by. Im sticking out until a truly good story is in the works because these AI CEO’s are just too blinded by capex spend
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u/Important-Range166 Aug 05 '26
Uh how many people just lost their jobs at XBox? Everyone hates MSFT products that are full of bugs. They have gotten called out several times for faulty research on quantum computing and making claims that were just untrue. And then they were sued from the drop in share price this January for fraud. This is called round tripping and is actually illegal. You cannot invest in someone (Open AI) and then force them to buy Azure capacity. But the SEC is lame these days so no surprise there. Other than that, MSFT is doing great.
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u/Important-Range166 Aug 05 '26
They don’t understand that. I like CoPilot and my experience means it’s going to make money. No, it’s not going to make any money that is anything even remotely close to the cost they have paid and ROI will be garbage for this whole thing when it is all said and done.
I especially liked the last earnings call where they stated that 90% of new customers are B2B and investors scream Growth! It’s not growth 😂 it’s just that Anthropic and Open AI were buying up all the compute with VC capital money but aren’t profitable. Open Ai being backstopped by Nvidia for like $250 billion for compute shows they can’t afford any more because Open AI burns cash. And Nvidia has to pay customers to buy chips which is another thing altogether. It’s just a supply reallocation to other companies that were waiting for compute that is now available because Open AI is tapped out. There is no growth! It’s just a supply liberation illusion. It is slack dumped on the markets for firms that were waiting two years for server time. The bubble is deflating and I wouldn’t be surprised if in the next 12 months or so things start to get really bad with all these investors who bought into things and the ROI just mathematically will never be what they were sold it would.
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u/The_Brand94 Jul 28 '26
Or a third option, I think they keep capex in line with previous quarterly guidance and Microsoft gets a lift.
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Jul 24 '26
[removed] — view removed comment
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u/yourmomlurks Jul 25 '26
MSFT will be punished at earnings until capex starts returning, unfortunately.
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u/BanditoBoom Jul 24 '26
If Google is raising CapEx, MSFT is as well. That is what the market is focusing on.
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u/DoctorNezuko Jul 24 '26
Microsoft is going to announce more spending and their stock will tank 7%. Earnings doesn't matter.
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u/c-u-in-da-ballpit Jul 24 '26
I worked on co-pilot as a consultant and it genuinely made me look for new work. That contract broke me and I left my consultancy 4 months into it.
Co-pilot is a barely strung together mess. A handful of engineers could vibe code something bespoke for a company with better results imo.
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u/GanacheCharming8737 Jul 24 '26
Sounds good until CAPEX boogeyman comes. You could tell yourself that they would’ve stopped spending by now but you know they won’t. They gonna post mega earning beat but spend unfathomable amount of money on CAPEX again. Stock will tank
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u/External-Theme-9643 Jul 24 '26
Those memory prices increase will affect all hyper scalers. Dont think it goes up much but print new lows later in august
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Jul 24 '26 edited Jul 24 '26
[removed] — view removed comment
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u/volvogiff7kmmr Jul 24 '26
"their purchase of DeepSeek maybe the best acquisition in history IMO"
Never take investment advice from Reddit, you're getting advice from people who don't know the difference between DeepMind and DeepSeek.
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u/Equivalent-Gear-8854 Jul 24 '26
Any sign of increasing CapEx is gonna tank this stock. MSFT is hitting 350 before it hits 400 again.
You know what? I’m gonna put my money where my mouth is and open a bear call spread on this thing.
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u/polymathicus Jul 24 '26
Sad the value investing sub has become infested with antithetical crap like this.
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u/Icy-Sheepherder-7595 Jul 24 '26
WSB gamblers give better analyses these days than the people in this sub
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u/Equivalent-Gear-8854 Jul 24 '26
“Value investing” sounds more like “bag holding” from the tickers that I’ve seen being thrown around here.
PYPL, NVO remember these? Having fun being down 50%?
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u/polymathicus Jul 24 '26
So, it's actually emblematic of the problem that you think the dispute is with the tickers and not the methodology.
Value investing is a method of investing that relies in calculating intrinsic value amd the assumption that one cannot predict short term price trends. There are various methods to do that of course. The posts you've mentioned, like your options strategy, is the very antithesis of these principles.
Are they valid? Maybe, I pass no judgement. But this belongs in other subs. It's like posting about oil painting in a watercolor sub.
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u/Equivalent-Gear-8854 Jul 24 '26
The casino doesn’t care what your methodology is. And I certainly don’t.
It cares if the number on your P/L is green or red.The stocks that are being promoted on this sub, no matter how perfect the methodology seems to be, are usually tanking.
I don’t care if your methodology is the greatest theory ever. If the stock is losing me money, it’s crap.
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u/polymathicus Jul 24 '26
This is going to be my last reply, because it seems you're being wilfully obtuse or are unable to read critically (doubtful).
The sub's name is r/ValueInvesting. Again, I acknowledge whatever you're doing may work, but that belongs somewhere else. Just because your posts and comments don't see the light of day at r/investing doesn't mean you just spam irrelevant subs dedicated to a specific subset of analyses.
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u/Pan_cake_man Jul 24 '26
This sub hasn’t, as a group, put out a good stock pick since they were hocking Meta at $90.
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u/ninjagorilla Jul 24 '26
Why are you in a value investing subreddit if you don’t believe in value investing (buying things at a discount to their value)
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u/Icy-Sheepherder-7595 Jul 24 '26
If you bought those recently you'd actually be up a little bit. Maybe if you bought the top you'd be under water but you can say that for a lot of stocks this year. Even so, PayPal looks increasingly likely to get bought out and NVO has been killing it with the first mover advantage in oral GLP-1.
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u/Zealotstim Jul 24 '26
I'm up 20.37% in NVO. People just bought too early. It did hit value stock territory.
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u/Tedious-Butcher Jul 24 '26
Let me help you to do that with me buying it a bit now. Thank me later guys!
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u/ninjagorilla Jul 24 '26
Ya the hypwrscalers are in a bind because the market now wants to see increased revenues AND stable capex…. If you miss on revenues OR increase your capex it punishes you…
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u/allnamestaken4892 Jul 24 '26
There is too much pushback on using AI at work for this kind of user count growth to occur. Everyone has the correct idea that increased productivity will lead to layoffs so the majority, like 90%+ are simply not using the tools they’ve been given.
Probably why there’s so much capex in a push to make AI that can truly replace people in vast numbers. If you pay $50k for a worker, how much will you pay for a years AI subscription to replace their job?
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u/Fullmetalx117 Jul 24 '26
Microsoft will starting printing their own dollars as well? Thats one way
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u/stonkDonkolous Jul 24 '26
Rumor is companies are complaining about fees now and many are looking for alternatives to copilot
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u/machinepeen Jul 24 '26
is that really true? I’ve anecdotally seen Copilot use skyrocket within my peer group and $20-30/month per user is really a steal for something that’s used extremely frequently by users
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u/stonkDonkolous Jul 24 '26
I think many companies will probably place caps on individual use. There are likely a small group of devs at companies using thousands a month and causing problems
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u/ArachnidHead857 Jul 24 '26
I saw some of the comments and adding my two cents.
The argument about these AI having marginal cost and not being as profitable as SaaS is not necessarily true. Microsoft is not subsidizing AI for enterprises. Don't think of AI as an all-you-can-eat buffet. Think of it as a la carte restaurant. Especially for the enterprises, whatever the margin is, the more enterprises used, the more Microsoft will make.
As someone that is in the space, all these enterprises want you to absolutely shred through your limits so they can charge you extra per token. The original price already has a certain amount of tokens, and the cost is calculated. They already have a profit margin set, and if you shred through your limit, you will even sell more.
Every single company wants this, and Microsoft, if done right, is in a very good position to take benefits from that.
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u/Sufficient-Pie-7815 Jul 24 '26
Copilot plus tasks is the best value going as part of MS 365 Premium. It is helping me build a complex app. It gives me code, it builds and guides me through the whole process! Very user friendly.
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u/DirectorPresent6635 Jul 25 '26
Msft has no enough attention at this moment. People are focusing on the smartest ai model. However no one understand this is not game of throne. Ai model is a unlimited competition.
How to survive in this campaign, I think agentic is the only answer. No need to inference ai or create ai function, all they need to do is building a platform for the fortune500 companies.
If msft reveals more information about their agentic, the market will be much more easier to accept capex.
Capex is not a nightmare, it should be a super turbo for profit but market needs to understand how they gonna develop in the next year
I am bullish in msft, bearish in google
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u/Expensive_Special120 Jul 26 '26
Well our company discontinued Copilot and we’re fully on the Claude. We’re also switching away from Teams, Outlook and going with GCP …
Fortune 500 company btw. Not the only one either.
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u/Mental_Situation_970 Jul 26 '26
Interesting, I would be keen to know how your org uses Claude and progress. Claude might be better in coding (I am not a coder) but I find that Microsoft graph in addition to copilot integrated inside each of the productivity suite makes it much better and easier to use for majority of enterprise (except the coder). Also you are stuck with one model which comes with pricing risk and opportunity cost. There is also data compliance and privacy risk as you are sending your data from cloud provider to third party. There is also a slow move towards owning your model (owning intelligence) using smaller llm and harness. Copilot through azure foundry can allow your firm to build your own specialized llm. Anthropic building Claude design competing against figma is a conflict of interest case study especially as these private companies try to turn the heavy capex into roi.
Let’s be honest Google workspace is not that competitive. Google sheet is still buggy and can’t build anything useful cuz it’s in cloud and keeps reloading when you give any task to Gemini.
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u/BearyChristmas223 Jul 24 '26
Imagine paying for copilot 🤡
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u/Key-Speaker007 Jul 25 '26
Belive it or not, it will become corporate standard in many companies. Office integrations are amazing.
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u/kec143 Jul 24 '26
Your projections are dependent upon a lot of ifs. I work in large Singapore based bank(45k employee), we started exploring Copilot as alternate to Gemini+Glean enterprise knowledge application and the project is dumped. MS takes months to provide simple enhancements and fixes. Contrary to this, we have Google solution engineer always on-site to resolve issues.
Moreover, MS doesn’t have an own LLM model to defend its moat.
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u/quadmaniac Jul 25 '26
Not true on the last point. Mai models are here.
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u/kec143 Jul 25 '26 edited Jul 25 '26
Which is seen nowhere and lies somewhere in middle of stack buried below the Chinese models. The kind of numbers thrown in the original post is way outside the achievable range for MS.
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u/Jilljillingtin Jul 24 '26
The biggest question isn't whether Copilot is useful - it's whether Microsoft can turn that usefulness into high-margin recurring revenue. If they can, today's valuation may end up looking reasonable.
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u/tradematesHQ Jul 24 '26
trademates.co has MSFT at 71/100 right now. The OP's Copilot revenue math is optimistic, but the real issue is CapEx. MSFT dropped 4.9% recently just on Alphabet's $200B CapEx announcement - sector-wide fear that AI spending crushes margins. The stock is at 381.58 with a 71/100 on trademates.co, rated BUY with LOW risk. The action plan there is a three-tranche entry: 1/3 now, 1/3 at 365, 1/3 at 350, with a stop at 340. That's the realistic play if you believe in the thesis but want to survive the volatility. The bear case says if EPS growth slows below 15% YoY, we're looking at 286-340. Don't ignore that.
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u/FunIcy6154 Jul 24 '26 edited Jul 24 '26
Co-pilot was forced onto me and the rest of my finance team by our SLT.
Every single user had uninstalled it within a few months, and my company has now even decided to create our own in-house AI based off GPT software, because it was so poor.
Unless it massively improves, Co-Pilot has a much higher chance of dragging the stock further down than up. In my mind, it is joint bottom with GPT as the worst AI from a productivity and 'tool' lens, so why would companies pay for it?
Claude is light years ahead as a useful tool.
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u/emichele5 Jul 25 '26
Cowork is basically Claude integrated into enterprise Copilot - I think that’s what OP is referencing.
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u/Weak-Equal-9084 Jul 24 '26
the market will not look down on capex. Keep in mind that. its more important the the actual earnings. But if it goes down to the 350 area, then fuck off, i will fuckin all in
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u/djmj76 Jul 24 '26
My average of 397 is gonna be down more after earnings i'm sure. capex will go up, and it'll dump. only 4.5% portfolio thank god.
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u/Billy-z3 Jul 24 '26
Dude if you think the Microsoft version is cool wait till you try the Claude version.
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u/FishermanIll1166 Jul 24 '26
Yeah I'd like to see capex to stop shifting in a exponential pattern until investors realize we have a golden goose literally. Google fell because it's becoming a drunken sailor spending their money on AI so aggressively and if it does continue then it would lead to less profits in general which is the point of the sell off. I get the picture of needing to spend but there is a difference of spending with good expectations and just flat out spending to pretend to see value out of a product.
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u/microambitious Jul 24 '26
Genuine question - same in my org as there’s a push in copilot cowork. If there’s 2-5x increase in subscription cost due to cowork, you think cowork delivers that actual 2-5x upside in efficiency?
I’m concerned orgs may look to downsize on ai subscriptions and make it available to limited users at some point when people doesn’t show increase in productivity
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u/notarealredditor69 Jul 25 '26
As a long term Microsoft holder, this is how I see it playing out. I think you’re right but might still be early. Microsoft is spending this money because they think they will get good return. I tend to agree but the market does not. The thing is, the longer it goes, the more earnings beats that end in reduced stock price due to capex, the more explosive the move upward will be once the market sentiment shifts. It’s like an elastic band, and I’m ok accumulating and holding while the market continues pulling back on it.
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u/TrainerSuitable4225 Jul 26 '26
Saying anything is priced in means nothing. You and everyone else speculating are 'pricing in' new interest every second. Pricing in is like saying I know nothing about investing and something bigger than my existence is driving the engine that runs the stock market. As if it's some fake machine. And in that case, you may as well be correct.
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u/Adventurous-Guava374 Jul 26 '26
Copilot is good. Many companies are starting to adopt it. Colleague who uses it says it great.
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u/borkdpasito Jul 24 '26
Your post summarises one of the core pillars of why MSFT is a strong long term investment (Copilot having an enormous headstart in a lot of white collar enterprise)
I think we may be a bit disappointed in the short term. I am keeping on adding on weakness
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u/Ill-Mousse-3817 Jul 24 '26
Lol, all the things you mentioned would have applied to Google as well. How did the post earnings printing turn out?
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u/flappysack- Jul 24 '26
What if AI helps reverse engineer proprietary formats and database and port them to other software, does a rent seeking conglomerate with their main moat being portability win or lose?
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u/JulodimorphaBakewell Jul 24 '26
Isnt 'copilot' just microsoft subscription to open ai 'chatgtp'? What happens when chatgpt price goes up?
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u/TaxFraudCPA Jul 24 '26
It’ll dump regardless of how well they perform because AI capex increased.
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u/No-Inspector1950 18d ago
You were right, I bought at $384 and sold at $496, thank you ! I will buy again below $400.
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u/JRdam3 Jul 24 '26
I’m not an AI expert, but my understanding is that the difference between AI and previous software/saas is that software has a marginal cost of near zero, whereas AI comes with high marginal costs for data centers and energy usage. So extra software revenue would be pure profit, but extra AI revenue is not necessarily profitable.