MSFT is Crashing - Here's Everything You Need to Know
Summary
Daniel provides a comprehensive analysis of Microsoft's recent financial performance and market position. He highlights that while the stock has corrected significantly, the company's non-GAAP earnings per share grew by 24% and revenue increased by 17% in the latest quarter. Daniel's main thesis is that the market is misinterpreting the deceleration in Azure's growth; he contends that Microsoft is simply capacity-constrained and cannot build data centers fast enough to meet the massive demand for AI and cloud services.
He compares Microsoft's capital expenditure (CAPEX) to peers like Google and Amazon, noting that Microsoft had fallen behind in spending, which explains the current supply limitations. Daniel views the massive increase in CAPEX as a necessary and positive move to unlock future revenue growth. Furthermore, he dismisses concerns regarding OpenAI's impact on remaining performance obligations (RPOs) as a 'silly bear case.'
Regarding valuation, Daniel notes that Microsoft is trading at a price-to-operating-cash-flow multiple of 18.6, which is its lowest level since 2018 and well below its historical average of 23-24. He provides the following stock-specific outlook:
Mentioned Stocks
Reasoning: Daniel states that Microsoft is undervalued after a 25% correction, trading at a 9-year low price-to-operating-cash-flow multiple of 18.6. He argues that Azure's growth deceleration is due to infrastructure capacity limits, not a lack of demand. He provides a fair value estimate of $516 and expects annual returns of approximately 16%.