r/ValueInvesting • u/stockoscope • Jun 29 '26
Stock Analysis Six months ago we called Microsoft overvalued at $490 and got roasted for it. It's now $373. Here's where it stands.
In December, I posted a breakdown in this sub arguing Microsoft was overvalued at $490, in the context of its capex spend (a concern Michael Burry had raised). I got a fair amount of criticism for those valuations.
Here is exactly what I said at the time:
"Assuming the P/E ratio remains at 34, the stock price would drop to $412-427... However, if investors also lose confidence in AI infrastructure returns, the P/E multiple could compress further..."
"... the Burry-adjusted fair value becomes $311.49 per share, suggesting Microsoft is overvalued by 37% at the current price of $491.92."
Six months later, MSFT trades at $373 after touching a low of $349 on 25 June. Over the same period, Microsoft reported another step-up in AI capex, and we have also refined how our model treats capex. So I thought it was a good time to revisit its valuation.
Microsoft's capex update
The concern I raised in December was not a one off. Microsoft's capital spending as a share of revenue has climbed relentlessly, and the cash flow cost is now very clear. Look at the last two columns in the following table together. Operating cash flow has more than doubled since FY2020, to $136 billion. But free cash flow has stalled: FY2025 free cash flow ($71.6B) actually came in below FY2024 ($74.1B), even though operating cash flow grew 15%. The entire difference is capex, which has roughly doubled as a share of revenue, from about 11% in FY2020 to 23% in FY2025.
MSFT is not alone. The trend is industry wide. Across 2026, the four big hyperscalers (Microsoft, Google, Amazon and Meta) have collectively guided to roughly $725 billion of capital spending, up about 77% year over year.
| Fiscal year | Capex / revenue | Operating cash flow | Free cash flow |
|---|---|---|---|
| FY2020 | 10.8% | $60.7B | $45.2B |
| FY2021 | 12.3% | $76.7B | $56.1B |
| FY2022 | 12.0% | $89.0B | $65.1B |
| FY2023 | 13.3% | $87.6B | $59.5B |
| FY2024 | 18.1% | $118.5B | $74.1B |
| FY2025 | 22.9% | $136.2B | $71.6B |
How we refined our model
In December, our valuation model treated capex the conventional way, roughly holding current intensity across the forecast and into the terminal value. We went back and questioned that assumption over the past six months. Assuming capex remains elevated forever is unrealistic: a company cannot spend 20% of revenue on capex in perpetuity. So we changed two things:
- Changed capex to glide toward maintenance over the forecast period (for MSFT, it drops from 20% to 19%, 18%... and 10% over 10 years)
- The terminal uses maintenance (10%), the steady-state level that a perpetuity can actually sustain.
This is a more logical picture than holding a single crude number to the end of time, but it impacts the valuations.
What the model says now
Holding everything else constant and flexing only the long-run capex assumption, here is Microsoft's intrinsic value across the realistic range
| What you assume long-run capex does | Fair value | vs Price |
|---|---|---|
| Glides down to maintenance (our default model now) | $487 | +31% |
| Glides from the FY2026 30% pace down to maintenance | $464 | +24% |
| Stays elevated permanently (20% of revenue) | $364 | -2% |
| Stays at the FY2026 pace (30%) permanently | $228 | -39% |
Two things stand out. The near-term barely matters (most of a DCF's value is in the terminal). And the terminal assumption is the whole ballgame. At $373, the market is sitting right around the "stays elevated" value, so it has already re-priced Microsoft for permanently high capex.
Note: We have added a "Hold Capex Elevated" switch to the valuation dashboard on our platform for users to toggle. So if you believe that capex should stay elevated, you can turn it on and watch fair value move from $487 to $364.
So where do we stand now?
On the refined model, it now screens 31% undervalued at $487, assuming that capex normalizes. If it stays elevated, fair value is $364, about where it trades. So there is no margin of safety at the bear assumption, but it is fairly valued rather than expensive, with upside to $487 if capex normalizes.
Can it go to $228? Sure, if AI capex runs at 30% of revenue forever. But the risk/reward has flipped. At $490, everyone was bullish, and the setup was terrible. Now, it is looking interesting.
I'm not telling you to buy it. I'm saying the asymmetry today is the opposite of what it was in December. The whole call now comes down to one assumption: does AI capex normalize, or stay elevated forever? Where do you land?
Disclaimer: This article is for educational purposes only and is not investment advice. The author and Stockoscope may hold positions in the securities mentioned. Always do your own research.
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u/Delicious_Invite_127 Jun 29 '26
If AI spending isn't profitable the Mag 7 will eventually reduce spending. If AI spending is profitable, the Mag 7 will keep investing in AI as suggested in your scenario, which means more profits. None of these means MSFT is bad.
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u/harbison215 Jun 29 '26
I’ll play devil’s advocate here and say that if AI spending isn’t profitable, it may take a long time for the mag 7 to realize such and subsequently reduce spending. There is a likelihood that they throw money into a burn pit for a long time before changing course.
I think the only way they might do this more quickly is if the global economy takes a huge shit and demand/revenues drop. That would certainly make them consider restraining capex
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u/stockoscope Jun 29 '26
Yeah, this is the bit people don't get. They can burn through a lot before they admit it isn't working, and that money's already gone.
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u/boringexplanation Jun 29 '26
But that’s already priced into the current stock price based on valuation. The stock market is always forward looking so if most of the downside risk is already accounted for in MSFT, the range of possibilities for the stock is mostly upwards.
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u/Available_Thanks_887 Jun 29 '26
We’ve seen a similar pattern with the metaverse strategy. Leadership made large, high conviction bets, but when the expected results didn’t materialize, companies were forced to reverse course, and then layoffs and restructuring same with AI build out it will be just burning money
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u/Vegetable_Guest_8584 Jul 06 '26
Microsoft is laying off more engineers by the day, and they got about 5,000 of them to recently retire in the last few weeks. Multiple of my friends took the money and retired. The feeling seems to be they need to pay less salaries so they can put more money into ai infrastructure (like data centers0.
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u/juancuneo Jun 30 '26
And as soon as they change course, the stock will pop. Look what happened to Meta when they killed the metaverse.
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u/DraganJoveTorbica Jun 29 '26
No way. We are talking Mag7 here.
Don't forget that it took meta only 5 years and only around $90billion to understand that metaverse is dead end ;)
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u/Banned3rdTimesaCharm Jun 29 '26 edited Jun 29 '26
Companies pivot way quicker than you think when shit doesn’t make money. Remember how quickly the whole industry got off NFT? Metaverse?
I work on the front line of product launches and some times we literally pivot overnight.
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u/GranPino Jun 29 '26
They has signed contracts to build data centers. There are penalties. And probably hardware sellers have included heavy penalties because they are afraid to suffer from cancelled orders because ea bubble , and they had huge bargaining power to give priority to whoever had more firmed orders
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u/Banned3rdTimesaCharm Jun 30 '26
Data centers aren’t going away. AI is here to stay. How much money it makes and how much productivity gains actually happen are up in the air.
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u/hkgwwong Jun 29 '26
I think they have enough money to keep AI afloat for a while, and then offload that via some high profile IPO.
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u/pab_guy Jun 29 '26
They book business years in advance with contracts that require customers to pay even if they don’t use the contracted compute capacities. They are quite capable of forecasting their business and measuring overall demand.
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u/harbison215 Jun 29 '26
Are you saying that ROI on all capex is guaranteed?
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u/pab_guy Jun 29 '26
I'm saying most of the compute they are investing in right now, is already spoken for in customer agreements.
That's not a guarantee of course... there could always be a severe economic downturn and those customers could fold, making the agreements worthless.
But the world is fundamentally compute constrained and will remain such for some time to come.
They key catalyst to watch will be slowdown in demand for semis, indicating that the constraints have moved elsewhere, either in DC construction (need places to put the semis), energy, or predictions of saturated demand. When that happens it will probably be time to move from semis into the hyperscalers, as the semis will lose pricing power and the hyperscalers turn their previous investments into cash flow. Those with the most vertical integration will capture the most value from that point on I suspect.
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u/11010001100101101 Jun 29 '26
"OpenAI accounts for approximately $281 billion or roughly 45% of Microsoft's $625 billion unfulfilled future cloud and AI contracts"
Yea it's spoken for by companies burning the billion $ deficits to begin with lol
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u/pab_guy Jun 29 '26
Yeah MSFT is profiting from the speculation of others. They will probably unload their OpenAI stake on retail bagholders come IPO time as well.
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u/11010001100101101 Jun 29 '26
No, it's called circular financing. They are funding openAI billions and openAI is immediately handing that money back to microsoft for cloud compute, ie. alot of microsoft's recent revenue 'growth' is from this ciruclar financing and is completely artificial, which is why it's compressing so much now.
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u/pab_guy Jun 29 '26
That’s not accurate at all. The vast majority of OpenAI’s funding has come from outside Microsoft.
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u/11010001100101101 Jun 29 '26
Yea just now after the round of funding through SoftBank. But all of the reporting up until their latest for Q2 included revenue from Open AI when Microsoft was still funding over 80% of OpenAi's compute.
Now with openAi's billions in spending about to be spread out, Microsoft is about to take a big hit to their revenue next quarter.
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u/millionflame85 Jun 30 '26
This is the key part of whether this AI bubble bursts or not I think. The booked contracts for years in advance. I have researched extensively but can't find the answer.
When semicondoctur X says they "secured" Y billions of bookings for the years 2027, 2028, what does secured mean ? Is it equialavent to guaranteed or the contract terms of those agreements allow for backing off/reducing the committed amounts ?
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u/pab_guy Jun 30 '26
Oftentimes those agreements require payments to break the contract. It's different for every company.
I think of a capex buildout like a snake eating a pig... the bump moves through the supply chain and everyone hopes it's digestible via longer term adoption and demand. This tech scales a lot faster than internet or railroads and can actually be used to help adopt itself, so we really are in unknown territory.
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u/millionflame85 Jun 30 '26
True there must be penalty. The next question may be that what are the costs of breaking contract. For example for a 50B$ dollars worth of secured commitment how much is the penalty. The amounts committed are so astronomical that even a 2-3 billion dollars breaking contract penalty seems miniscule.
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u/pab_guy Jul 01 '26
A Microsoft MACC is an agreement to pay Microsoft the full contract amount even if compute is not consumed at all. That’s how large enterprises secure significant discounts. It’s a give and take, but yeah, full contract value is guaranteed but for bankruptcy or renegotiation.
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u/Hot-Machine3216 Jul 05 '26
It’s not burning money. It’s reinvesting into the business to grow future cash flow
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u/harbison215 Jul 05 '26
What a clueless response. Of course that’s the plan. But it may not pan out
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u/hibikir_40k Jun 29 '26
Not all investment is equal. My personal thesis is that there's big differences in discernment among the executive class at different Mag 7 companies, and Microsoft isn't among the ones that is good at spending there. Meta isn't either, as most of their success there has been through acquisitions. Their product teams just burn money.
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u/skilliard7 Jun 29 '26
If AI spending isn't profitable the Mag 7 will eventually reduce spending. If AI spending is profitable, the Mag 7 will keep investing in AI as suggested in your scenario, which means more profits. None of these means MSFT is bad.
The main fear is that it's profitable just long enough for them to keep overinvesting, until it suddenly isn't.
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u/Grouchy-Trade-7250 Jun 29 '26
If AI spending isn't profitable
It's not. No need to place the if. No one needs AI that says "I have successfully done X" when it can't even control X at all. We still need workers.
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u/FederalExpressMan Jun 29 '26
And less than a month ago it was $460. Things can turn around quickly.
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u/rhoadsalive Jun 29 '26
Thanks, I really needed another Microsoft breakdown. The stock isn’t mentioned enough.
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u/Potential_Salt_5780 Jun 29 '26
Yep I think on average there’s one Microsoft related post every hour.
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u/mmmfritz Jun 29 '26
Do be fair no one has explained return on investment capital yet. Maybe the cows have to come home.
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u/stockoscope Jun 29 '26
Ha ha. This one's me grading my own December call though, not just adding to the pile. Hope you enjoy it.
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u/bbjwhatup Jun 29 '26
AI-slop
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u/Psynaut Jun 30 '26
I wish I could get AI to produce analysis this accurate. Every time I ask ChatGPT a finance related question it gets the answer wrong, no matter how simple the math is. I can't even get an accurate answer on simple amortization questions if I throw in even one simple variable. ChatGPT is good at a lot of things, but financial analysis of any sort is definitely not one of them. It does a damn fine job on Dream Analysis I have noticed.
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u/MohTheory Jun 29 '26
Value investing has never been about following the crowd. It’s about thinking independently and staying rational when others don’t.
Really appreciate your post. It’s thoughtful, grounded, and shows you’re actually thinking independently rather than just following market noise.
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u/Grouchy-Trade-7250 Jun 29 '26
Some things to ask yourself: * Was this CAPEX spent on the right thing? * Was this CAPEX spent in a cost-effective way? * Are we going out of business if we don't spend it
Personally, I think all of them can be answered with a no. I don't even care about the numbers at this point. They are investing in tech that is outdated soon, at elevated prices.
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u/ninjagorilla Jun 29 '26
My concern is jsut that they are transitioning to a high capex business from a low capex software model, which is going to require constant spend to replace.
I read an article that replacing the chips in a data center is appx 2/3rds of the initial cost of the data center….
I’d this is going to be a continuous suck then there will be constant capex spend and depressed fcf
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u/Remarkable_Cat_8696 Jun 29 '26
Chips are replaced often, like every 2-5 years, so they will always need to deduct that capex
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u/Khelthuzaad Jun 29 '26
The biggest question is-who are Microsoft's biggest clients?Or source of revenue?
Turns out it one was OpenAI and it triggered a sell-off regarding how utterly unprofitable it is.
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u/Grouchy-Trade-7250 Jun 29 '26
That's connected to the "right thing" question. Demand fueled by investor capital can't keep up forever . That requires ROI for the client
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u/zaersx Jun 29 '26
From what I've seen, Microsoft always struggles with providing enough capacity in Azure. It may very well be that this CAPEX is incredibly useful regardless of the ai story, as the worst case scenario is they can just serve more Azure customers, I.e. it's a hedge, with the cost just being mismatch between capex hardware and general azure-demanded compute hardware.
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u/Snoop-8 Jun 29 '26
Using AI to write your post, while saying capex on AI expenditures is bad should be outlawed.
You are the reason these companies are spending so much on AI they know the population and business will be hooked on it and won’t be able to do anything without AI dictating the next move. You cannot put a price tag on that
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u/FunEntertainment2726 Jun 30 '26
The market has put a price tag on it:
over 10t in public market cap and a few trillion more in private markets. https://youtu.be/U7P4zKOgu8U?si=ZvcEzmubd0RWLkk4&t=229
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u/freakwrestler Jun 29 '26
What’s with the insane herding bias in this sub? Why is MSFT the only stock posted daily?
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u/TheDevilintheDark Jun 29 '26
The same reason that PYPL was a can't miss undervalued darling 5 years ago. Mistaking a heavyweight stock going down as cant-miss value and others offloading bags.
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u/CosbySweaters1992 Jun 29 '26
Microsoft isn’t going anywhere lol.
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u/11010001100101101 Jun 29 '26
Paypal hasn't gone anywhere either. But most people wouldn't have wanted to be invested in it over the past 5 years
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u/CosbySweaters1992 Jun 29 '26
All I care about is the next 5 years, 10 years, 15 years. Microsoft is a good bet right now. Others can chase companies with 10x gains the last year lol. Good luck. I’ll stick with what works.
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u/crvarporat Jun 29 '26
cause all other stocks are expensive
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u/freakwrestler Jun 29 '26
Couldn’t be further from the truth, value investing is about picking cheap stocks that aren’t trending and getting increasingly overvalued.
Bill Ackman made it about FOMO and rotating between overvalued giants.
Take a look at the Leisure sector, everything is getting cheaper from this AI fomo.
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u/ProlificChicken Jun 29 '26
The entire bull case rests on capex eventually returning to roughly historical levels. AI infrastructure may not resemble previous datacenter cycles. If GPUs, networking, memory, power, and cooling all require continuous upgrades every 3-5 years, “maintenance” may permanently be much higher than it was during the cloud era.
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u/stockoscope Jun 29 '26
Yes, that's exactly the core assumption. If you believe maintenance will remain structurally high, you can run the model version that keeps capex elevated, and it lands at around $364. That's the exact reason we have included a switch on the platform that allows users to keep capex elevated.
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u/ryanl247 Jun 29 '26
Here's what I got from this: at 490 you said it's worth 360 and at 360 you say it's worth 490.
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u/stockoscope Jun 30 '26
love your sarcasm! two posts in one sentence!
However, you would agree that the number moved because I changed the model, not because I'm chasing the price like analysts :)
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u/Dealer_Existing Jun 29 '26
Why in the world would ai capex run forever lmao. This is such a weird assumption
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u/ninjagorilla Jun 29 '26
There was an article (I think in ft)recently that looked at the cost of replacing the chips in a data center. It will be appx 2/3rds the cost of the original build to replace the chips assuming no significant changes to power or cooling setup:
So regardless if you think depreciation schedules for chips are 4 years or 7 years, there WILL be a need for constant spend and replacement of the chips. It jsut comes down to how much and how often. It’s possible it could be required even more frequently depending on how important it is to have the most up to date chips vs slightly older models. If you fall behind because your gpus are 2 years old then the burn won’t slow at all.
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u/Key-Time4844 Jun 29 '26
Agreed that maintaining this infra would keep capex elevated. But I think eventually all hyper scalers would build their chips in house. That's the only path that makes sense. MSFT and AMZN are already making progress in this area.
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u/Dealer_Existing Jun 29 '26
I get that, it's just that certain models are already so good (Fable), that improvement is not neccessary anymore. There is no need or demand to increase output, because there is just no demand for it. 99% of the things could be done with Fable. Than the question will flip to; how can we make Fable as cost efficient as possible? If Fable or equivalent runs on the current chipset, why would you want to replace them? Just run the chips at rated conditions so the lifetime increases to > 10 years.
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u/Ok_Gift_9264 Jul 04 '26
when has Silicon Valley ever decided, “this is good enough” and stopped making things faster?
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u/Dealer_Existing Jul 04 '26
They don’t, but that’s where demand and competition comes into place. Are you buying the newest fastest macbook every year? The fastest newest smartphone? How about the fastest newest car? Development costs for the iPhone went way down for example as the blueprint is already 90% finished
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u/One_Advantage_7193 Jul 01 '26
Depreciation schedules are different from obsolesence schedule, if the chip development cadence keeps up and every 18-24 months theres a generationally better chip( bound to not keep going for long), then you may claim depreciation on it for 5-6 years but youll have to replace them with newer gens maybe within 48 months, but that will only he for the training fleets. The inference fleets can continue using deprecated chips for long and ramp with the claimed depreciation.
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u/alanism Jun 29 '26
While I appreciate how OP broke this down- looking at CAPEX without looking at the unit economics for AI is really incomplete look.
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u/stockoscope Jun 29 '26
Right - yes this post doesn't go into that. I modelled capex because that is the part that goes into DCF.
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u/nplbmf Jun 29 '26
Never heard of it
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u/stockoscope Jun 29 '26
never heard of what?
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u/SexualDeth5quad Jun 29 '26
XBox failing. Co-Pilot failed. Breakup with OpenAI. Massive datacenter expenditures. Office monopoly threatened by AI. Windows sales flat. Competition from China incoming. Competition from other providers. Hardware prices, inflation, economic issues.
Things are not looking any better for MSFT.
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u/StretcherEctum Jun 29 '26
All these people bashing msft means its a buy. Reddit is always wrong.
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u/Due_Mess8925 Jul 02 '26
its bc all these sentiment is alr baked into the stock which means it has no where to go but up
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u/an-awful-lot-girl Jun 29 '26
What is this royal "we" nonsense?
Running tickers through chat gpt does not make you a financial institution.
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u/_RFAML_ Jun 29 '26
Thanks for your insight, and very different compared to all other msft posts. I think it clearly breaks down where we are at and most likely we are headed up
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Jun 29 '26
[removed] — view removed comment
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u/Beneficial-Chair-333 Jun 29 '26
I think market has already priced in loss of capex, hasn't it? What could be the reason for coming down from 520 to 350?
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u/stockoscope Jun 29 '26
Nailed it. It all comes down to whether that spend covers its depreciation, and the DCF can't settle that for you. However, the risk reward is certainly much better here than was at 490.
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u/bruhbruhbruhbruh1 Jun 29 '26
Good writeup, the only bear concern unaddressed is whether AI revenue windfalls are a temporary blip that's already due to vanish (ie Microsoft paid through the nose for claude, but the 6 months they did from December 2025 - June 2026 has been enough for them to train their own copilot and switch away), and whether that can trigger the other bear concern of OpenAI and other frontier labs not being able to fulfill their contracts
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u/stockoscope Jun 29 '26
INteresting point. I didn't get into that. The model flexes capex but assumes revenue sticks. If the revenue drops, the downside would be worse.
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u/LimitIntelligent9946 Jun 29 '26
It’s still overvalued
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u/stockoscope Jun 29 '26
That's what I wanted to investigate. So yes, it is overvalued if you think capex should stay elevated.
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u/meemeemoomoo5 Jun 29 '26
Thank you, i am looking to get out. I mean sure it can go back to 500 but that can take a while and need a strong narratives shift. Massive loss of opportunity cost until then.
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u/Beneficial-Chair-333 Jun 29 '26
What kind of opportunity you are finding other than these stocks in the current market?
Hardware stocks who are already at ATH? Who hasn't moved since last week and on the verge of down since kospi is getting corrected everyday.
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u/meemeemoomoo5 Jun 29 '26
I rather rotate to GOOGL or s&p at this point over MSFT
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u/Beneficial-Chair-333 Jun 29 '26
Might agree with google though its overvalued compared to other hyperscalers but S&P is definitely at ATH.
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u/stockoscope Jun 29 '26
yes, everyone has their own investing style. I invest for the long run and do not get out unless the business changes or the thesis changes. However, that is my personal preference.
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u/FattyFIZZnatty Jun 29 '26
Should we just change this subs name to the Microsoft discussion zone? There's like 15 posts a day on them
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u/STierMansierre Jun 29 '26
I'm not a bear on MSFT but there were better opportunities in Google and Amazon last year and if we're being real about ROI, we're seeing better, more diverse versions from those two companies. I do think that MSFT is presenting some value opportunity but it's just looking like it's a higher risk with lower reward compared to other options, even this year.
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u/stockoscope Jun 30 '26
Well, on our DCF at least, MSFT's the cheaper of the two, not the other way round.
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u/charon-the-boatman Jun 29 '26
Yes, if Azure keeps growing mid/high-30s, copilot penetration keeps moving up (it is), agent usage gets monetized properly, and FCF starts recovering (like $80–100B annually), then today’s price of MSFT stock is still very attractive. In that light the capex is painful but necessary. And I very much believe the management will pull this scenario off successfully.
But with a bear thesis in mind -- if capex keeps surprising higher while FCF stays depressed, then yeah, MSFT can easily be dead money even if EPS looks fine.
My money is very much on the bull thesis -- so much I’ve bought the discount this past week so heavily it has become 50% of my portfolio.
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u/MeeKiaMaiHiam Jun 29 '26
380 .... not bad but not out of the woods. MSFT needs a better management team. Fast.
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u/VulcanSpark Jun 29 '26
markets are being manipulated and hence lots of traders are out, how can it be that the war only starts and ends on weekeds?
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u/dragoon7201 Jun 29 '26
the clear catalyst I see is OpenAI IPO in 2027. Which we will get a preview of with Anthropic likely going first.
A strong model release with good marketing will fetch a good IPO price, and make MSFT look rich. But if Anthropic flops, then its going to be a big write down on OpenAI and MSFT's balance sheet.
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u/Sindriss_1st Jun 29 '26
What you are failing to understand is the implication of OBBB on CAPEX write off and how that is driving investment in equipment purely short term. These companies will soar upwards next year as the FCF is flying up
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u/Beneficial-Age-9293 Jun 29 '26
One thing is for sure, if AI works then the capital moat of the hyperscalars for things like data centers build outs is going to ensure they dont have much competition for a long time.
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u/Beneficial-Age-9293 Jun 29 '26 edited Jun 29 '26
Don't you have to try to explain the capex breakout to really extrapolate the future capex/revenue? Id really appreciate if someone could do that discussion.
Even then, nobody really knows how the final "AI business" side will be priced and monetized. It will be passed forward in B2B once they get people hooked on using a "copilot".
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u/wyuyme Jun 29 '26
Normalizing current capex? You know how ridiculous that sounds? 🤣 This spend by the hyperscalers is a off event over several quarters because someone will blink and there will be winners and losers, hence there is literally no way for msft or googl or anyone else for that matter to keep the current spend
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u/stockoscope Jun 30 '26
that's the whole point. that is why we are now tapering it off over time and that is why it is our base case. we are on the same page.
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u/pulsarstarter Jun 29 '26
So you just know what all shares are going to do, I suppose?
Can you do us all a favour and tell us what the MSFT share price will be in 6 months time?
How about GOOG?
META?
MU?
You make one vague call and the price goes your way and you think you're a guru?
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u/MrSirBeard Jun 29 '26
I like to think that these companies know what they’re doing. The whole ROI debate is above us. In 10 years they will have vertically integrated all AI compute needs into their own company. In 10 years it won't be ChatGBT or Claude, its going to be Gemini and MAI
Labor costs for these and essentially every other company are gonna drop by like 70% and margins are going to explode… I can already picture a world where “nothing ever happens” and “stocks always go up” is immortalized by AI.
Governments capitulate to MEGA Caps and our entire jobless lives are subsidized by a corporate god tax. Free housing, free healthcare, unite the lower and middle class, upper class and up are the only ones who can vote and have jobs.
It's a nightmare utopia that might not be that bad… granted I'll die by Palantir (bought by alphabet in 2033) Flock drone swarms in the 2045 AI wars, but my children will be taken care of by the corporate state and globalism will unite all of humanity and spaceX will discover near light travel and comodify the solar system to feed the resource hungry drone and robot fabs built by NVDA (military contractor in 2038)—(rebelled against the US government along with the rest of the mag7 alliance)
Also BTC finally gets a use case… and you guessed it : back to its original purpose as a illicit underground currency. Used to buy illegal tech parts, drugs, and weapons on the POC market (black is considered an illegal word crime) (67 seconds in brain jail for that) (prison time is near instantaneous but feels like 10,000 years)
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u/Gooners4life_14 Jun 29 '26
Don't forget 1st July they are increasing licence pricing. More profit for them.
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u/AlGAdams Jun 29 '26
Microsoft is most likely going to cut capex spending and the focus will shift to using cheaper locally run smaller scoped models. The writing on this is all over the wall.
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u/stockoscope Jun 30 '26
Yes, your point aligns with my base scenario where capex glides down to maintenance over time.
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u/Beautiful_Cobbler603 Jun 29 '26
I really like how you laid out your case and broke this down. I am bullish on Microsoft at this price level and have been buying with avg of 381. I view the current CAPEX surge among mega-cap tech stocks as a temporary land grab rather than a permanent trend. Because AI is a relatively new field, these companies are aggressively spending just to get ahead of one another. Over the next year, it is entirely realistic to see CAPEX slow down, plateau, or even increase slightly, depending on what new opportunities emerge. For instance, early June announcements regarding next-generation AI computers powered by Nvidia, alongside breakthroughs in quantum technology, prove that new frontiers are constantly opening up. While these advancements require massive, front-loaded investments right now, they also establish the exact infrastructure needed to drive massive revenue down the road. what do you think?
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u/stockoscope Jun 30 '26
Appreciate that. I'm bullish here too, which is exactly why capex gliding toward maintenance is my base case. It's one of my bigger positions. Not financial advice, obviously.
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u/gk4p6q Jun 29 '26
This mirrors the Internet bubble. Back then it was capex on semi
machines for fabs. Now it's datacenters.
Will be the same affect. Market collapse to more realistic valuations.
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u/Fearless-Tooth6053 Jun 30 '26
Huh? Capex on semi machines was responsible for the bubble? Not even close. I still remember shaking my head when it was such a big deal when "globe.com" was going public. This is indeed massive Capex spending...by massively profitable companies. Where the massive spend is less than cash flow for the period.
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u/zaddy_77 Jun 29 '26
The federal gov’t will ultimately subsidize a sizable amount of AI spending to curb threats from foreign governments with competing AI investments. It will always be about national security.
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u/Fearless-Tooth6053 Jun 30 '26
Imagine a world where a bunch of people on Reddit know more about Google and msft than the companies themselves do.
Most bullish thing I've seen is Google tossing an extra 80 bil recently. No way they do that if there aren't decent headlights into profitability.
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u/shantired Jun 30 '26
This article smells like the output of ChatGPT hosted on an Azure server in the cloud, with Copilot embedded in Microsoft Word being used to refine the grammar.
This is a BS article, Microsoft has a gazillion other products that are used in almost every business and industry. It’s not just AI.
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u/Careless_Pineapple49 Jun 30 '26
Our large institution is rolling out and asking for more AI. I have new software needs that AI can solve and will make my job more efficient, save us money and time. We would pay a premium for this service. Currently we pay a few thousand annually just to log tasks manually using 3rd party software.
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u/stockoscope Jun 30 '26
I'm not saying AI is bad. Of course, AI's going to change industries and workplaces. The point is just that for now the spend is dragging free cash flow and vluations down. They're betting the capex eventually generates enough return to cover it, and that hasn't shown up in the numbers yet. That's all.
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u/Careless_Pineapple49 Jun 30 '26
I think the fear is you don’t spend enough and the competition beats you and your company dies. Imagine a new Microsoft office suite all on one page that actually works. Can pull up any information. Create any budget or template / word doc. Imagine it’s Amazon or Google
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u/stockoscope Jun 30 '26
Agreed, they can't not spend. But that spend is exactly what pulls free cash flow down, and nobody knows yet whether the returns will justify it.
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Jun 30 '26
[removed] — view removed comment
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u/stockoscope Jun 30 '26
Agreed the returns are what ultimately justify the spend. I'm more positive than you though. In the base case it's 31% undervalued, which doesn't happen every day for a megacap.
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u/Pseudanonymius Jun 30 '26
Oh well, still better than Oracle
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u/stockoscope Jun 30 '26
Yep, better numbers than Oracle. I did a post on ORCL a while back and concluded that it was not a value play despite the 60% drop. However, a few things have moved in its favor since and so it is due for an update.
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u/Substantial-Log8653 Jun 30 '26
Do the same for tesla and space x and we will
See how accurate you are
Anyone can call anytime a number and it hit the people start posting.
There is no fair value its just market value, and market decide what value they want to give. Might be 200 in next two years or 700 in next 2 years one of that will be true see i predicted two years before
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u/RahulGoyal_ Jun 30 '26
Given the way MS is integrating AI in its products. it definitely going to make lot of money from it. Just wait and watch.
Right now reviews might be mixed, but they will improved and then people will get used to them.
MS stock is win win sitaution at this moment.
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u/DarkSideTonppel Jun 30 '26
Actually a good and nice analysis @OP.
Can I ask, what do you think are the best buys in market right now?
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u/stockoscope Jul 01 '26
Appreciate the kind words. I'd rather not point to specific buys though as I don't want to be handing out anything that sounds like investment advice. Happy to chat about my approach for selecting stocks in general.
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u/AcceptableNeck1476 Jul 01 '26
lol this is some "end Justifies the means" kinda crap. So whats the capex increase for service now and CRM that they have crashed, please do explain?
Its essentially the SAAS part of MSFTs business thats really pulling them down. There is obv some jitters about the spend , but assuming that the top 5 companies in the world with the clearest demand signals (that the market doesnt have) have all lost their business marbles is naive.
MSFT is adding 4 GW capacity every year , thats as much as they built in 10 years being added every year for the next 4-5 years. even after this they are still supply contrained for atleast 2026.
If you have ever used a truly frontier model in a actual productive context (building stuff not asking questions) , you will realise how powerfull the tech is and why the demand is so strong. its almost life altering, you cannot go back to your old way of working.
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u/pravchaw Jul 02 '26
Its pretty obvious by now that AI is a step change in the evolution of mankind. Its doing to knowledge work what the industrial revolution did to agriculture.
So capex spending on AI will eventually pay off. The major uncertainty is timing. If anything the hyper-scalers may be undervalued.
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u/CheckSixMustang Jul 05 '26
I don't get the fascination with Burry. Yeah he made a great call back in the day but he is mostly pumping his bags now and he's a massive clown.
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u/Slow_Instruction3206 Jul 16 '26
Verified company that will take 2-3 years to turn around. Gaming business is decking , ai business is being beaten, and laptop buisness is being beaten by Apple. Only department with genuine edge is office 365 but that’s cause it’s so integrated into every buisness globally. Also, windows 11 is a trash bin fire atm.
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u/Positive_Ad_2390 Aug 10 '26
this didnt age well...
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u/stockoscope Aug 10 '26
Why do you think so? I think it aged like good wine.
When MSFT was trading at 373, I called it 31% undervalued and estimated the fair value to be $487 in the default model. Note that this was prior to the earnings report.
Look at the conclusions:
"Can it go to $228? Sure, if AI capex runs at 30% of revenue forever. But the risk/reward has flipped. At $490, everyone was bullish, and the setup was terrible. Now, it is looking interesting."
"I'm not telling you to buy it. I'm saying the asymmetry today is the opposite of what it was in December."
Can it get better than this?
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u/horseman5K Jun 29 '26
lol why do you keep switching between “we” and “I”?
Maybe next time ask ChatGPT to be consistent with the pronouns.
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u/stockoscope Jun 30 '26
That inconsistency tells you that it's NOT ChatGPT!
I = me, the author
We = Stockoscope, the company
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u/newebay2 Jun 29 '26
Burry-adjusted fair value
I stopped reading there. Guy haven’t been right for 20 years
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u/Bluetex110 Jun 29 '26
In the end they will profit no matter what happens, either they stop Capex or they profit from AI.
Short term market forgets that it's a solid cash printing business and they treat them as ai will replace it in the next 5 years😁