Kim BoltonMicrosoft CorpMSFTTOP PICKAug 28, 2024

MSFT has decided to live within its means and boost capex on data centres. After yesterday's Midterms, the markets expect new laws to slow data centre building, which will make the price of a data centre cheaper to build, which helps MSFT.

Better able to manage cashflows than GOOG and AMZN. Its FCF is positive. Azure revenue growth has picked up. Market approves of its more conservative approach to AI spending.

Among Mag 7 peers, it still has the best combination of cloud, software, AI, recurring enterprise revenue with enough cash flow to fund the huge AI build out.

It's one of the five biggest spenders in capex on data centres. If was the only to say it would trim spending. It had the best report of the three megacaps that reported this week, beating revenues and earnings while Google and Amazon missed both. Azure grew 48% and cash flow was positive. Capex spending for the quarter was much lower than expectations. Their spending will accelerate in the second half of fiscal 2027.

They reported total revenue growing 19% with total revenue growing 19%, and Azure growing 48%, beating the street. The AI tailwind keeps getting better.

He can't believe the market pushed this down to $400. The story then was that MSFT had too much tied to OpenAI, and that AI would disrupt their software business, Narratives change. MSFT is growing top and bottom line at a huge rate. He's own this since 2012. They will continue to see big earnings growth and deliver enormous free cash flow. Once the data centres are built, the hyperscalers will be the big winners.

Remember they reinvented itself for the cloud. It's a machine now. It fell earlier this year due to AI fears, but MSFT will benefit from AI.

They report next week. They boast 30 million paid Co-Pilot users. Azure's business will be up 40-45%, plus they are free cash-flow positive, unlike last quarter.

One of two tech stocks he'd own today. 

He wouldn't but today, but neither would he sell. So much of investing is buying at the right price, and then letting things work. Valuation's a bit rich. Look to add on a pullback. Well positioned on AI. Well diversified. Great balance sheet, lots of cashflow. Important that some of these companies can do massive capex, but not be FCF-negative.

Largest security company in the world, though obviously not a pure play. Look at this instead of CRWD.

Wonderful operator. Likes it, but sold recently as it came close to his team's estimate of FMV. But that selling is not a reflection on the CEO or on the actual business. Its products are ubiquitous. Generates a lot of free cash. Doing all the right things.

Copilot could steer MSFT higher. More users use it than ChatGPT now, and leads ChatGPT and Claude on trust. MSFT is already a trusted company among businesses. Shares have jumped 40% over 6 months. They have good governance.

It's starting to recoup its large data centre investment. He stuck with MSFT the whole way down earlier this, because he had fait in the CEO who understood the need for data centres from their customers and was willing to ride the dip.