My uncle, bless his heart, cornered me at Thanksgiving. Not about politics, thankfully, but about “the robots taking over.” He’d read an article – a very alarming article, he insisted – about artificial intelligence and the impending doom of, well, everything. He wanted to know if I, the one who “follows the markets,” thought it was time to sell everything and invest in canned goods. I tried to explain Microsoft, and Azure, and the whole cloud thing, but he mostly just nodded and asked if the robots would at least be polite.
It’s funny, really. The market is currently experiencing a full-blown panic about AI. Not the existential dread kind my uncle harbors, but a financial one. SaaS stocks are getting hammered because everyone fears being replaced by a clever algorithm. And the hyperscalers – those companies building enormous data centers – are suddenly viewed with suspicion, as if spending billions on infrastructure is inherently… unwise. It’s like watching a collective anxiety attack unfold in real-time.
Which brings me to Microsoft. They’re smack in the middle of this whole mess. They’re both the potential disruptor and the one being disrupted. It’s a wonderfully awkward position, and as an investor, I find it… compelling. The stock, currently hovering around $400, seems almost unfairly discounted given the circumstances. I’m not saying it’s a sure thing – nothing ever is – but it feels… sensible. Like choosing a comfortable pair of shoes when everyone else is attempting to scale Mount Everest in flip-flops.
The Two-Headed AI Beast
Microsoft is benefiting from this AI frenzy in two ways, which is, frankly, a little greedy. First, their Azure cloud platform is seeing a surge in demand for AI services. Apparently, customers are spending a lot more money, like $1 million per quarter more, on things like Foundry, which lets them build these… AI agents. I don’t fully understand what an AI agent is, but it sounds expensive. Azure revenue was up 39% last quarter, which is… substantial.
But here’s the catch. Microsoft is apparently so overwhelmed with demand that they had to allocate computing power for their own AI development. It’s like a bakery getting so busy with custom orders that they run out of bread for the regular customers. They spent $37.5 billion on capital expenditures last quarter – mostly on building data centers and filling them with servers. Billions. My uncle would have a field day. They’re expecting a slight dip this quarter, but it’ll ramp up again, naturally. It’s a virtuous cycle of spending, apparently.
They have a massive backlog of $625 billion in remaining performance obligations. That’s a lot of promises. A new deal with OpenAI accounts for $250 billion of that, but even without it, the backlog would have climbed 28%. They’re also doing well with Microsoft 365 and Dynamics 365, which, if you’re keeping track, are the things most people use to write passive-aggressive emails and manage spreadsheets.
And the commercial software business is humming along nicely. Microsoft 365 commercial revenue climbed 17% last quarter, and Dynamics 365 was up 19%. They’re also pushing this Copilot software, which is basically AI that helps you write emails and create presentations. It has 15 million users, which feels… vaguely unsettling. They’re now launching a new suite that includes Copilot and this Agent 365 platform. They have over 400 million Microsoft 365 users, so there’s a lot of potential to upsell them to the AI-powered version. It’s the digital equivalent of adding avocado to everything on the menu.
The stock is trading at just 24 times forward earnings estimates. Considering their position in both cloud computing and enterprise software, it seems poised to grow revenue and earnings at a double-digit pace for the foreseeable future. It’s not a revolutionary pick, it’s just… reasonable. And in a market obsessed with disruption and hype, sometimes reasonable is enough. Maybe even… comforting. I’ll have to remember that when my uncle starts talking about robots again.
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2026-03-16 12:22