Opinions
Chris Thom - CIM, DMS, FCSI
Microsoft Corp
MSFT-Q
PARTIAL SELL
Jul 31, 2025
Stock price when the opinion was issued
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EPS of $3.65 beat estimates of $3.37; revenue of $76.44B beat estimates of $73.89. EBITDA of $45.5B beat estimates by 15%. Microsoft's commercial remaining performance obligations of $368 billion in fiscal 4Q, more than $50 billion above 3Q, gives confidence in another year of mid-double-digit sales growth. Estimates for 13% gains next year will likely move up, led by Azure, which could expand 34-36% in 2026. Capital-spending consensus including leases is another metric that may see an upward revision, with analysis suggesting $118 billion for 2026, up 34%. AI workloads gaining scale and double-digit sales growth could help lift 2026 operating margin above 2025. In addition, tight cost control, particularly on head count, could offset any gross-margin pressure from a shift in sales mix to lower-margin cloud infrastructure and greater depreciation. We think AI is a big factor here, as the company, while spending lots of money, is getting good customer traction. But we think underlying customer growth is very much a part of the good results as well.
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Revenue is so consistent. Everything it does is recurring revenue. 18% revenue growth for one of the largest companies on the planet, best recurring revenue model ever built. On the leading edge of everything. Product suite is unbelievable. Stock buybacks. Might well be his favourite Mag 7. Yield is 0.63%.
(Analysts’ price target is $623.23)
Premium contentOne has to look past its high valuation as it trades at 38x earnings and 11x book, but with a ROE of 33% it demonstrates its dominance in the space. Recently reported earnings beat analysts estimates for revenues (by 4%) and EPS (by 9%). Cash reserves are growing, while shares are aggressively bought back and debt is retired. Management reports its strategy to cloud computing and AI are yielding good returns. We continue to recommend a stop at $453, looking to achieve $607 -- upside potential of 16%. Yield 0.6%
(Analysts’ price target is $606.61)12-month price target of $620. Hasn't trimmed, still second-largest holding in his fund. Earnings were very strong, especially coming out of the cloud. So many strong horses in the race. Very strong in AI participation.
Buy in thirds here, under $500, and ~$470.
The company he'd be owning 5 years from now. Partnership with OpenAI is most consequential company of our time. Totally ahead on AI. Absolute beast when it comes to distribution. Wide-reaching tentacles across every Fortune 500 company. Path of least resistance when it comes to adopting AI -- security platform, Office 365, Copilot powered by ChapGPT. Yield is 0.66%.
(Analysts’ price target is $624.70)
Long term, definitely a good investment. Good company, has continued to grow, adapted through all markets. Trades ~41x PE, expensive. If you've owned for a while and done well, you may want to diversify away from it; but over the last 30 years, this has been a bad idea.