AAS RESEARCHEvidence register

MSFT · ENGLISH V1 · 22 OCTOBER 2026

Microsoft.
What the price requires.

AI capex. Backlog concentration. Copilot. Value against price.

English v1 · 22 October 2026Nasdaq: MSFTQuote: $532.95 · 21 Oct 2026Balance anchor: 30 Jun 2026

SUMMARY

Price is 63.1% above central value.

Purpose. This is a quality sample of company research. It states findings and their evidence.

Fair value. Our central estimate is $326.86 per share. The 21 Oct 2026 close of $532.95 is 63.1% above this value.S10S11 Practitioner checks give $84.49 to $609.26 (cross-check).

On evidence available on 22 October 2026, the price is 63.1% above our central value. The price requires revenue of about $1,496bn in FY2035 (nominal), a 18.2% yearly growth rate from FY2026, against 12.2% in our central path. At central operations, it implies a discount rate of 7.33% against our dated 9.57%.

Risk measure. Scenarios use real company years. The FY2023 trough regime gives $221.35. The FY2026 run-rate regime gives $521.69; the price is 2.2% above it. The range is 92% of the central value. A stress with trough operations and capex held at 25% of revenue gives $157.25; it is outside the weights.

The business. Microsoft is an exceptional franchise in its heaviest investment phase. FY2026 revenue rose 17.8% to $331.8bn, with a 46.8% operating margin. Capex including finance leases reached $140.6bn, 42% of revenue; free cash flow after all of it was $42.4bn.S1S7

What changes the view. Three inputs move the value most: the pre-depreciation margin at scale, the capex intensity after FY2030, and the discount rate. One point off the WACC gives $397.87. Holding the FY2026 margin of 57.1% gives $375.98. Terminal capex at 15% of revenue gives $360.16. Two thesis breakers sit outside the weights (thesis breakers). Watch Azure growth, commercial RPO excluding the partner and capex each quarter.

Review status: provisional. One blind round with four separate reviewers ran. It closed three facts (cost of debt, depreciation rate, a label) and moved the central value by less than 2%. The stability rule needs two quiet rounds; Q1 FY2027 results on 28 October 2026 come first.

Set your own scenario weights

Case values come from the model and do not change with weights. Weighted value = Σ weight × case value. Weights are your judgement; the defaults are placeholders, not probabilities. Stress rows are not weighted cases.

EVENTS SINCE THE LAST FILING

Thesis challenged.

No results filing followed the FY2026 10-K of 29 July. The capex guide changed basis, segment reporting changed, and the discount rate stayed high. The main open item is the concentration of the backlog in one AI-model partner. Q1 FY2027 results on 28 October will test it.

Each event is sorted by its channel into value: estimate, multiple, discount rate or flows. Window: 2026-07-29 to 2026-10-22.

DateEventChannelMechanismModel effectSource
2026-07-29FY2027 capex about $175bn including finance leases; data-centre useful life extended from 15 to 25 years, so more new leases become operating leasesestimatePart of the build-out moves from capex to lease cost inside operating marginFY2027 capex $175bn in all cases; a 2-point margin hit for the lease shift is a sensitivityS13, S14
2026-07-29Commercial RPO $678bn, +84%; +25% excluding the main AI-model partnerflowsBacklog growth depends on one counterpartyBreaker S1S1, S13
2026-07-29Q4 FY2026 gain of $3.2bn on the second AI-lab stakeflowsNon-operating gain; not in NOPATNone on the DCF; stake inside investments at bookS3
2026-09-02From FY2027 two reportable segments: Agents and Infra; Devices and ConsumermultipleAzure-type revenue may lose its separate growth lineNone on value; the early-warning indicators may need new definitionsS5
2026-10-01Implied US equity risk premium 4.20%discount rateSets the market premium in the cost of equityIn the dated WACCS9
2026-10-2110-year Treasury par yield 5.13%discount rateRisk-free base of the cost of capitalWACC 9.57%; sensitivities at plus and minus one pointS8
2026-10-28Q1 FY2027 results after the close (date announced 7 Oct 2026)estimateAzure growth against the 45% guide, capex against $50bn, margin guidePendingS23

Thesis challenged. The franchise evidence is intact. The thesis that the AI build-out earns its cost of capital is challenged by the concentration of the backlog: commercial RPO grew 84%, but 25% without one partner.S1S13

PRACTITIONER CROSS-CHECK

Three methods beside the DCF disagree; the spread is the finding.

MethodValue / sharePrice vs value
DCF central (Base)$326.8663.1% above
Median fiscal year-end P/E FY2023-26 × FY2026 non-GAAP EPS$609.2612.5% below
Owner earnings capitalised at cost of equity less 3% growth, plus net cash$255.49108.6% above
FY2026 free cash flow after all capex and finance leases, same capitalisation$84.49530.8% above

The P/E method gives the highest figure. It assumes the market multiple of FY2023–26 (median 35.3×) holds while capex quadruples; that multiple was set when free cash flow was close to net income.S10S3 The owner-earnings method treats depreciation as maintenance capex. The free-cash-flow method uses FY2026 cash after all capex, the trough of the build-out. The DCF sits between them because it lets capex intensity fall from 42% to 20% of revenue.

P/E value = median year-end P/E (FY2023–26) × FY2026 non-GAAP EPS $17.28 = 35.3 × 17.28
Capitalised value = (cash flow × 1.03) / (cost of equity − 3%) + net cash and investments, per share; cost of equity 9.71%

CONTEXT

Snapshot and forces.

ItemValueSource
Price, 21 Oct 2026$532.95S10, S11
Shares, 23 Jul 20267.4255bnS1
Market value$3,957bncalculated by us
FY2026 revenue / operating income$331.8bn / $155.2bnS1, S7
Microsoft Cloud revenue FY2026$214.4bnS1
Commercial RPO$678bn (+84%)S1
Cloud infrastructure share, Q2 202620% (Amazon 28%, Google 15%)S15

Micro forces. Azure-type revenue grew 41% in FY2026 and 43% in Q4.S1S3 Seats for Microsoft 365 Commercial grew 6%; revenue per user rose with Copilot and E5.S1 Windows OEM and Devices fell, and management guides a high-teens fall in FY2027.S13

Macro forces. The 10-year Treasury yield is 5.13%.S8 Cloud infrastructure spending grew 43% in Q2 2026, the fastest in eight years.S15 Power and component supply limit capacity across the industry.

RESEARCH QUESTIONS

Five questions, each mapped to a section.

QuestionSection
What revenue, growth and discount rate does the price imply?What the price implies
How much of the backlog and growth depends on one AI-model partner?Thesis breakers
Does the capex base earn its cost of capital, and what is it worth in a fallback use?Capex, Fallback use
What do the trough, normal and run-rate company years give?Scenarios
Is the market size large enough for the implied share?Market test

METHOD

Validated data, a deterministic model, blind review.

Validated data. Each figure carries its source, period and label: reported by the company, adjusted by the company, or calculated by us. Filing figures were read twice: from the document and from the regulator's structured data.S1S7 Six source levels apply; conclusions rest on levels 1–3.

Deterministic model. One script computes every number in this note from the stated inputs. Prose numbers come from the model outputs. Route: a goodwill-heavy franchise, screened by owner earnings against market value and checked by earning power against reproduction cost.

Blind multi-angle review. Separate reviewers received the facts without the conclusion: a bull, a bear, a number check and a gap finder. Each worked alone. Their findings changed three inputs (changes).

Signal strength. Evidence is graded from regulator data down to platform signals. Press-only facts are marked Unverified and do not move the central case.

Compared with typical automated research. Typical outputs give one target price. This note shows what the price requires, three cases from real company years, stress cases outside the weights, and the evidence for and against each.

Weights. Scenario weights are the reader's judgement. The calculator in the summary computes a weighted value from any weights.

WHAT THE BLIND REVIEW CHANGED

One round, four reviewers, three fixes.

FixBeforeAfterEffect on central value
Pre-tax cost of debtBook interest / (debt + finance leases) = 2.85%10-year Treasury + 50 bp = 5.63%Small; debt weight is 2.6%
Starting depreciation rate12.5% of opening net PP&E + half capex11.5%, closer to FY2026 (34.3 / 313.1 = 11.0% of closing PP&E)Central ≈ −1%
Owner earnings labelCalled "owner earnings yield"NOPAT yield; maintenance capex set equal to depreciationNone

Reviewers also confirmed 14 reported figures against the 10-K and found no error in them. The Bull bridge includes the partner stake at its reported value; a reviewer read this as an error, but it is a stated case input.

Blind spots considered

AngleFindingEffect on valueSource
AccountingCapex guide of $175bn is lower partly because new data-centre leases become operating leases after the 15-to-25-year life changeLease shift as a 2-point margin hit: $307.60S13, S29
CounterpartyCommercial RPO +84% total, +25% without the main AI-model partner; press puts its share at 32–45% ($217bn–$305bn, Unverified)Breaker S1S1, S13, S21
Regulator / taxIRS NOPAs seek $28.9bn plus penalties and interest for 2004–2013Base deducts the $28.6bn long-term tax liability; Bear adds half the NOPA (−$1.95)S1
CreditLeases not yet commenced $329.1bn; purchase commitments $194.1bn; total obligations $443.5bn of leases incl. interestFixed cost if demand slows; in breaker S2 margin hitS1
BullPartner stake carried at $12.0bn; reported value about $135bn at the Oct 2025 recapitalisation (Unverified)Bull marks it, after 21% tax: $339.95 on Base operationsS1, S18
BearIncremental ROIC FY2023–26 18.6% versus Base RONIC 25%RONIC 15%: Bear case; stress $157.25calculated by us
CompetitorCloud infrastructure share flat at 20%; Google gained 2 points in a yearNone; Azure growth path is a case inputS15
MarketQ1 FY2027 results on 28 Oct 2026; segments change to twoEvent risk; indicators may be redefinedS23, S5

01 — RESEARCH NOTE

What the price implies.

We solve the central model for the growth that makes value equal the $532.95 price, holding margins, capex rules and the discount rate.S25

Implied revenue: $1,496bn in FY2035 (fiscal year to June 2035), nominal US dollars, of which $1,002bn from Azure-type cloud. FY2026 revenue was $331.8bn.S1 Our central path reaches $934bn.

Implied growth: 18.2% a year, FY2026 to FY2035, against 12.2% in the central path and 16.1% a year in FY2023–26 (calculated by us).

Implied discount rate: 7.33% at central operations, against our dated WACC of 9.57% (10-year Treasury 5.13% on 21 Oct 2026).S8

Implied margin: a pre-depreciation margin of 73.4% from FY2030, against 57.1% in FY2026.

Implied market share: Azure-type revenue of $1,002bn is 60% of a FY2035 cloud infrastructure market of $1,670bn, against 20% today; total revenue is 46% of a $3,221bn total cloud market. Both market figures extend the dated estimates below at 20% a year to 2030 and 10% to 2035 (calculated by us).

Market estimateDateValueScopeSource
Cloud infrastructure services, trailing twelve months30 Jul 2026$500bn; Q2 $143.4bn, +43%IaaS, PaaS, hosted private cloudS15
Total cloud revenue, 2030Sep 2024$2.0tn; 22% CAGR 2024–30Includes SaaSS16
Public cloud end-user spending, 202519 Nov 2024$723.4bnAll public cloud servicesS17
Find k such that Value(Base, growth × k) = $532.95; k = 1.435
Implied CAGR = (RevenueFY2035 / $331.8bn)1/9 − 1 = 18.2%

Implied 9-year revenue CAGR by WACC and terminal pre-depreciation margin

WACC \ margin48.0%50.0%52.0%55.0%57.1%
8.57%17.2%16.4%15.7%14.7%14.0%
9.07%18.5%17.7%17.0%16.0%15.3%
9.57%19.7%19.0%18.2%17.2%16.5%
10.07%20.9%20.1%19.4%18.3%17.7%
10.57%22.1%21.3%20.5%19.5%18.8%

Central value by WACC and terminal growth

WACC \ g2.0%2.5%3.0%3.5%4.0%
8.57%$361.48$378.22$397.87$421.30$449.75
9.07%$330.25$343.73$359.35$377.70$399.57
9.57%$303.31$314.28$326.86$341.44$358.55
10.07%$279.86$288.88$299.11$310.84$324.43
10.57%$259.29$266.76$275.16$284.69$295.62

Every cell of the first table asks for faster growth than the central path, unless the WACC falls by a point and the margin holds at the FY2026 level.

02 — RESEARCH NOTE

Thesis breakers, outside the weights.

Each breaker starts from the Base path and changes one mechanism. Loss sizes are our assumptions.

S1. The main AI-model partner slows or leaves

Thesis. The backlog converts: the partner keeps buying capacity and its incremental commitment lifts Azure growth through FY2030.

Counter-thesis. One counterparty carries most of the backlog growth. If its funding or demand slows, Azure growth falls towards the ex-partner rate and the related stake falls with it.

Evidence for the breaker:

  • RPO +84% in total but +25% without the partner (Jul 2026)S13
  • Partner revenue $24.1bn in FY2026, 7.3% of company revenue and about 23% of Azure-type revenue; receivable $6.0bn (Jun 2026)S1
  • Right of first refusal on the partner's compute given up (Oct 2025)S18
  • Peer case: one buyer was 62% of a GPU cloud's revenue (Mar 2025)S28

Evidence against:

  • Revenue sharing and IP rights to 2032 continue (Oct 2025)S18S1
  • Ex-partner RPO still grew 25% (Jul 2026)S13
  • A second AI lab committed $30bn of Azure compute (Nov 2025)S20

Value per share: $302.75 if half the partner revenue leaves from FY2028; $277.02 if all of it leaves and the stake is written off.

Early-warning indicator: Commercial RPO growth excluding the partner, and total RPO quarter on quarter, in each quarterly release and call; threshold: total RPO down in a quarter.

S2. AI capex does not earn its cost of capital

Thesis. Capex near 45% of revenue converts into revenue at returns above the 9.6% WACC; depreciation is absorbed by scale.

Counter-thesis. Capacity is priced down as supply arrives; capex stays high at 25% of revenue, returns on new capital fall to 12% and leases add fixed cost.

Evidence for the breaker:

  • Incremental ROIC FY2023–26 18.6% versus ROIC 28.7% (Jun 2026, calculated by us)S1
  • FCF after all capex $42.4bn in the year to Jun 2026 versus $56.3bn in the year to Jun 2023S7
  • H100 rental price fell from $6.62 (late 2023) to $2.83 (Feb 2026), UnverifiedS26
  • Leases not yet commenced $329.1bn, FY2027–FY2033 (Jun 2026)S1

Evidence against:

  • Operating margin rose from 41.8% (FY2023) to 46.8% (FY2026), Jun 2023 to Jun 2026, while depreciation tripledS1S2
  • Demand above capacity; Q1 FY2027 Azure guide about +45% (Jul 2026)S13

Value per share: $235.89; combined with S1, $197.97.

Early-warning indicator: Operating margin and capex to revenue in each quarterly release; threshold: two quarters of margin below 44% with capex above $50bn.

S3. Copilot monetisation stalls and seats saturate

Thesis. Copilot and agents raise revenue per user while seats grow 6% a year.

Counter-thesis. Seats near saturation and Copilot stays a small add-on; Productivity growth falls to mid-single digits.

Evidence for the breaker:

  • 30 million paid seats at a $30 list price cap Copilot at about $10.8bn a year, under 4% of revenue (Jul 2026)S3S22
  • Commercial seat growth 6% (year to Jun 2026)S1

Evidence against:

  • Microsoft 365 Commercial cloud revenue +17% in FY2026 with revenue per user up (Jul 2026)S1

Value per share: $295.95 with 8% less non-Azure revenue by FY2030 and a 2-point margin hit.

Early-warning indicator: Microsoft 365 Commercial cloud revenue growth and seat growth in each quarterly release; threshold: cloud revenue growth below 10%.

S4. Windows and devices decline

Thesis. Windows remains a stable cash source.

Counter-thesis. PC demand and component costs cut Windows OEM and Devices by high teens, and the decline persists.

Evidence for the breaker:

  • Guide: Windows OEM and Devices down high teens in FY2027 (Jul 2026)S13
  • More Personal Computing revenue −1% in FY2026, −4% in Q4 (Jul 2026)S1S3

Evidence against:

  • Segment operating income still rose to $14.4bn in FY2026 (Jul 2026)S1

Value per share: $319.17 with 5% less non-Azure revenue by FY2030.

Early-warning indicator: Windows OEM and Devices revenue growth in each quarterly release; threshold: worse than −20%.

Lost Azure revenuet = Azuret × 0.228 × share lost (t ≥ FY2028); capex follows the plan to FY2029

03 — RESEARCH NOTE

Three segments, one investment programme.

YearProductivity revMarginIntelligent Cloud revMarginPersonal Computing revMargin
FY2023$94.2bn53.2%$72.9bn38.9%$44.8bn22.4%
FY2024$106.8bn55.9%$87.5bn43.2%$50.8bn23.5%
FY2025$120.8bn57.8%$106.3bn42.0%$54.6bn25.9%
FY2026$140.0bn59.9%$137.8bn41.3%$54.1bn26.6%

Segment figures are reported by the company.S1S2 Costs of AI infrastructure are allocated across segments by gross margin, so segment margins are not standalone economics.S1 Depreciation by segment is not disclosed.

YearAzure-type revenueGrowthRest of revenueGrowthLabel
FY2023$43.1bn—$168.9bn—FY2025 reported (>$75bn); others calculated by us from growth rates
FY2024$56.0bn30.0%$189.2bn12.0%FY2025 reported (>$75bn); others calculated by us from growth rates
FY2025$75.0bn34.0%$206.7bn9.3%FY2025 reported (>$75bn); others calculated by us from growth rates
FY2026$105.8bn41.0%$226.1bn9.4%FY2025 reported (>$75bn); others calculated by us from growth rates
AzureFY2026 = $75.0bn × 1.41 = $105.8bn; AzureFY2024 = $75.0bn / 1.34

The company states that Azure revenue "surpassed $75 billion" in FY2025 and "$100 billion" in FY2026.S4S3 Our FY2026 figure of $105.8bn fits the second statement. Earlier years are back-solved and are Unverified as dollar figures.

04 — RESEARCH NOTE

Capex: maintenance and growth.

YearCash capexFinance-lease additionsTotal% revenueDepreciationFCF after all capex
FY2023$28.1bn$3.1bn$31.2bn14.7%$11.0bn$56.3bn
FY2024$44.5bn$11.6bn$56.1bn22.9%$15.2bn$62.4bn
FY2025$64.6bn$20.5bn$85.1bn30.2%$22.0bn$51.1bn
FY2026$115.9bn$24.6bn$140.6bn42.4%$34.3bn$42.4bn

Totals add finance-lease additions to cash capex, both reported.S1S7 The FY2027 guide of about $175bn includes finance leases.S13S14 The life extension from 15 to 25 years moves more new leases to operating leases; their cost lands in operating expense, not capex.S29

Maintenance versus growth. The company does not split capex. We use depreciation as the maintenance proxy: $34.3bn of $140.6bn in FY2026, so about 76% was growth capex (calculated by us). Management said about two-thirds of Q4 capex went to short-lived assets, mainly CPUs and GPUs.S13 Servers and network equipment rose from $132.8bn to $215.9bn at cost in one year.S1

Growth capex ≈ total capex − depreciation = $140.6bn − $34.3bn = $106.3bn
Incremental ROIC = ΔNOPAT / ΔInvested capital (FY2023→FY2026) = ($125.1bn − $71.7bn) / ($436.1bn − $149.4bn) = 18.6%

Consolidated ROIC was 28.7% in FY2026 (42.0% without goodwill and intangibles); the incremental return on capital added since FY2023 was 18.6%, close to twice the WACC.

05 — RESEARCH NOTE

Fallback use of the asset base.

If AI demand fell short, the next-best use of the server base is wholesale rental of GPU capacity to other buyers. We value that route.

  • GPU rental index, 7 Oct 2026: median H100 rent $4.20 per GPU-hour; spot fell from $6.62 (late 2023) to $2.83 (Feb 2026). S26
  • Capacity contract, 8 Sep 2025: Microsoft agreed to buy $17.4bn of GPU capacity over five years from a neocloud. S27
  • Peer filing, Mar 2025: one buyer was 62% of a GPU cloud's 2024 revenue, so rental demand itself is concentrated. S28

Assumptions (ours): servers at cost of $215.9bn, net $140.3bn after a 35% depreciation share; first-year rental revenue 30% of that net base; prices fall 15% a year; cash margin 55%; six-year life; taxed and discounted at the WACC.

Rental PV = Σt=1..6 net base × 30% × 0.85t−1 × 55% × (1 − tax) / (1 + WACC)t = $63.1bn

Fallback value per share: $8.49, against $326.86 central. The fallback recovers a small part of the value. The $329.1bn of leases not yet commenced would still run.S1

06 — RESEARCH NOTE

Market test: is the market large enough?

EstimateDateValueSource
Cloud infrastructure services, TTM30 Jul 2026$500bn; Q2 annualised $574bnS15
Total cloud revenue, 2030Sep 2024$2.0tnS16
Public cloud end-user spending, 202519 Nov 2024$723.4bnS17

The central path puts Azure-type revenue at $541bn in FY2035, 32% of our extended infrastructure market. The price needs 60%.

  • Counter-argument: the market grows faster. Q2 2026 growth was 43%, the 11th quarter of acceleration.S15 At 30% a year to 2030 the FY2035 market is larger and the implied share falls. Our 20% then 10% path is an assumption.
  • Counter-argument: scope. Microsoft sells software on its own cloud; part of Copilot and agent revenue sits outside infrastructure trackers, so a share of an infrastructure market understates reach.
  • Counter-argument: concentration of buyers. A share of a market where a few AI labs buy most new capacity carries counterparty risk that a share figure hides.S28

07 — RESEARCH NOTE

Entity status of holdings and investees.

EntityStatusExchangeTickerListing dateRelation and source
Microsoft CorporationpublicNasdaqMSFT13 Mar 1986S32
Main AI-model partner (public benefit corporation since Oct 2025)private——— (confidential draft registration, Jun 2026; not listed on 22 Oct 2026)Equity-method investee, about 25% as-converted, carrying value $12.0bn S1, S18, S19
Second AI-model labprivate———Minority stake, up to $5bn invested S20, S3
LinkedIn Corporationprivate (wholly owned since 8 Dec 2016)——Delisted Dec 2016S30
Activision Blizzard, Inc.private (wholly owned since 13 Oct 2023)——Delisted Oct 2023S31

The 10-K names the main partner in its related-party note and states the ownership as about 25% on an as-converted basis.S1 The partner's legal form changed to a public benefit corporation in the October 2025 recapitalisation.S1S18

08 — RESEARCH NOTE

From enterprise value to equity.

ItemBase, $bnPer shareSource
Cash and short-term investments$76.8bn$10.35S1
Equity and other investments (incl. partner stake at book)$36.3bn$4.89S1
Debt−$40.3bn−$5.43S1
Finance lease liabilities−$66.6bn−$8.97S1
Long-term income taxes (incl. uncertain positions)−$28.6bn−$3.86S1
Accrued legal liabilities−$0.6bn−$0.07S1
Total−$22.9bn−$3.08calculated by us

Operating lease liabilities ($21.9bn) are not deducted: their cost sits inside the operating margin. Finance leases are deducted because their assets sit in PP&E and future additions sit in capex.

Equity = EV + cash + investments − debt − finance leases − long-term taxes − legal; value per share = equity / 7.4255bn

09 — RESEARCH NOTE

Discount rate, dated.

InputValueDateSource
10-year Treasury par yield5.13%21 Oct 2026S8
Implied equity risk premium4.20%1 Oct 2026S9
Regression beta, 2 years weekly1.126 (n = 104)to 21 Oct 2026S10, S12
Regression beta, 5 years weekly1.146 (n = 260)to 21 Oct 2026S10, S12
Adjusted beta1.091calculated by us—
Cost of equity9.71%calculated by us—
Pre-tax cost of debt5.63% (Treasury + 50 bp, assumption)21 Oct 2026S8
Debt and finance leases weight2.6%calculated by usS1
Statutory / FY2026 effective tax21% / 19.4%FY2026S1
WACC9.57%calculated by us—
Adjusted β = 0.67 × raw β + 0.33; Ke = 5.13% + 1.091 × 4.20% = 9.71%
WACC = (1 − wd) × Ke + wd × Kd × (1 − 21%) = 9.57%

No country premium is added; the company sells worldwide and the US mature-market premium is a stated simplification. Tax moves from the FY2026 effective 19.4% to 21% by FY2030.

10 — RESEARCH NOTE

Scenarios from real company years.

AssumptionBearBaseBull
BasisFY2023 troughFY2024-25 normalFY2026 run-rate
Azure-type growth FY2027 → FY203628% → 3.0%34% → 3.0%43% → 3.5%
Rest growth FY2027 → FY20365% → 2.5%9% → 3.0%10% → 3.5%
Pre-depreciation margin from FY203047.0%52.0%57.1%
FY2027 margin vs guide-2 pt+0 pt+1 pt
FY2027 capex, $bn175175175
Terminal capex / revenue15%20%22%
Terminal growth2.5%3.0%3.5%
RONIC15%25%35%
Partner stakebookbookreported value, after tax
IRS NOPA beyond accrualhalfnonenone

Bear uses FY2023: revenue +7%, Azure about +30%, pre-depreciation margin 47.0%, capex 14.7% of revenue. Base uses FY2024–25: revenue +16% and +15%, margin 50.8%–53.4%. Bull uses FY2026: revenue +18%, Azure +41%, margin 57.1%.S1S2 All cases anchor FY2027 on the operating-margin guide.S13

Pre-depreciation margin = (operating income + depreciation) / revenue; FY2026: ($155.2bn + $34.3bn) / $331.8bn = 57.1%
FCFt = EBITt × (1 − taxt) + depreciationt − capext − 1% × Δrevenuet
Depreciationt = ratet × (opening net PP&E + ½ capext); rate 11.5% → 12%
TV = NOPATT+1 × (1 − g / RONIC) / (WACC − g)

11 — RESEARCH NOTE

Central valuation.

CaseEVBridgeValue / sharePrice vs valueTerminal share of EV
Bear$1,681bn−$37bn$221.35140.8% above63%
Base$2,450bn−$23bn$326.8663.1% above68%
Bull$3,800bn$74bn$521.692.2% above72%
Stress (outside weights)——$157.25238.9% above—

Base path, fiscal years, $bn

FYRevenueAzure-typeCapexDepreciationEBIT marginFCF
2027$388bn$142bn$175bn$46bn45.8%$14bn
2028$452bn$185bn$181bn$62bn42.0%$32bn
2029$523bn$235bn$183bn$77bn39.1%$56bn
2030$598bn$291bn$180bn$91bn36.8%$84bn
2031$677bn$350bn$169bn$101bn37.1%$129bn
2032$754bn$408bn$151bn$108bn37.7%$181bn
2033$826bn$463bn$165bn$114bn38.2%$197bn
2034$887bn$508bn$177bn$121bn38.4%$212bn
2035$934bn$541bn$187bn$128bn38.3%$223bn
2036$962bn$557bn$192bn$136bn37.9%$231bn

FY2027 counts only the 252 days after the valuation date. Free cash flow stays low to FY2029 because capex follows the plan; it rises when capex falls towards 20% of revenue.

12 — RESEARCH NOTE

Class screens: owner earnings and earning power.

The company is goodwill-heavy (goodwill and intangibles $138.3bn), so a price-to-net-assets screen does not apply; at 13.0× tangible book it says nothing useful. The screen is owner earnings against market value; the check is earning power against reproduction cost.S24

NOPAT yield = operating income × (1 − 19.4%) / market value = $125.1bn / $3,957bn = 3.16%
Earning power value = NOPAT / WACC + bridge = $1,307bn → $172.92 per share
ROIC = NOPAT / (equity + debt + finance leases − cash − investments) = 28.7%; without goodwill and intangibles 42.0%

The NOPAT yield of 3.16% sits below the 5.13% Treasury yield. No-growth earning power is $172.92 per share; growth must supply the rest of the price. Earning power ($1,307bn) far exceeds a crude reproduction base of net PP&E, leases and acquired intangibles ($473bn): the franchise is real.

13 — RESEARCH NOTE

Limits of this note.

  • Azure revenue before FY2025 and after the FY2027 segment change is calculated by us from growth rates (Unverified as dollar figures).S5
  • The partner's share of the backlog is a press estimate (Unverified).S21 The 10-K does not split RPO by customer.
  • Capex guidance comes from third-party call reports; the issuer transcript was not opened.S13S14
  • The partner stake value of about $135bn is a press figure (Unverified); Base keeps book value.S18
  • The registration status of the partner rests on EDGAR search and press (Unverified beyond 22 Oct 2026).S19S6
  • Depreciation by segment and the dollar effect of the life extension are not disclosed (Unverified).

EVIDENCE REGISTER

Sources.

S1
FY2026 Form 10-K

29 Jul 2026 · primary, level 2 · Retrieved 22 October 2026. Income statement, balance sheet, cash flow; segment note 18; PP&E note 6; leases note 13 (finance leases, $329.1bn not yet commenced); commitments table; RPO $684bn / $678bn commercial; related-party note on the main AI-model partner (about 25% as-converted, $24.1bn revenue, $6.0bn receivable, $13.0bn commitment); IRS NOPAs $28.9bn; cover-page shares 7,425,545,491 at 23 Jul 2026.

S2
FY2025 Form 10-K

30 Jul 2025 · primary, level 2 · Retrieved 22 October 2026. FY2023 segment revenue and operating income; FY2023 depreciation $11.0bn; finance-lease additions FY2023 $3.1bn.

S3
Q4 FY2026 earnings release (Exhibit 99.1)

29 Jul 2026 · primary, level 3 · Retrieved 22 October 2026. Azure revenue "surpassed $100 billion"; Azure +43% in Q4; over 30 million paid Copilot seats; $3.2bn gain on an AI-lab stake; non-GAAP EPS $17.28.

S4
Q4 FY2025 earnings release (Exhibit 99.1)

30 Jul 2025 · primary, level 3 · Retrieved 22 October 2026. Azure "surpassed $75 billion in revenue, up 34 percent" in FY2025.

S5
Form 8-K, FY2027 segments

2 Sep 2026 · primary, level 1 · Retrieved 22 October 2026. Two reportable segments from FY2027: Agents and Infra; Devices and Consumer.

S6
SEC submissions register, CIK 789019

retrieved 22 Oct 2026 · regulator, level 1 · Retrieved 22 October 2026. SIC 7372; filing list. No 10-Q after the 10-K on 22 Oct 2026; DEF 14A filed 21 Oct 2026.

S7
SEC XBRL company facts

retrieved 22 Oct 2026 · regulator, level 1 · Retrieved 22 October 2026. Second read of revenue, operating income, capex, OCF, SBC, finance-lease additions, balance items FY2023–26.

S8
US Treasury daily par yield curve

21 Oct 2026 · regulator, level 1 · Retrieved 22 October 2026. 10-year par yield 5.13% on 21 Oct 2026.

S9
Implied equity risk premium, US market

1 Oct 2026 · practitioner dataset, level 5 · Retrieved 22 October 2026. Implied ERP 4.20% (trailing 12 months, adjusted payout) on 1 Oct 2026. Single origin.

S10
MSFT historical prices

21 Oct 2026 · market data, level 5 · Retrieved 22 October 2026. Close $532.95 on 21 Oct 2026. Weekly adjusted closes, 5 years, for the beta regression and fiscal year-end P/E.

S11
Nasdaq historical quotes, MSFT

21 Oct 2026 · exchange data, level 4 · Retrieved 22 October 2026. Second read of the 21 Oct 2026 close.

S12
S&P 500 index history

21 Oct 2026 · market data, level 5 · Retrieved 22 October 2026. Weekly adjusted closes, 5 years, market leg of the beta regression.

S13
Q4 FY2026 call transcript (third-party)

29 Jul 2026 call · secondary, level 5 · Retrieved 22 October 2026. FY2027 capex about $175bn incl. finance leases; Q1 capex above $50bn; Q1 Azure about +45% cc; FY2027 operating margin down less than 1 point; useful life 15 to 25 years; RPO +25% excluding the main AI-model partner; Windows OEM and Devices down high teens in FY2027.

S14
Report of the Q4 FY2026 call: capex

Jul 2026 · secondary, level 5 · Retrieved 22 October 2026. Second report of the capex outlook and the lease reclassification.

S15
Cloud infrastructure market, Q2 2026

30 Jul 2026 · industry tracker, level 4 · Retrieved 22 October 2026. Q2 revenue $143.4bn, +43%; TTM $500bn; shares Amazon 28%, Microsoft 20%, Google 15%. Scope: IaaS, PaaS, hosted private cloud.

S16
Cloud revenues to reach $2tn by 2030

Sep 2024 · bank research, level 5 · Retrieved 22 October 2026. Cloud revenue about $2tn in 2030, 22% CAGR 2024–30; $496bn in 2023. Scope includes software as a service.

S17
Public cloud end-user spending forecast

19 Nov 2024 · industry, level 4 · Retrieved 22 October 2026. Worldwide public cloud end-user spending $723.4bn in 2025, +21.5%.

S18
Report: partner recapitalisation terms

Oct 2025 · secondary, level 5 · Retrieved 22 October 2026. Stake about 27% valued at about $135bn; IP rights extended through 2032; right of first refusal on compute given up; $250bn incremental cloud commitment. Stake value Unverified.

S19
Report: partner draft registration

16 Jun 2026 · secondary, level 6 · Retrieved 22 October 2026. Confidential draft registration submitted; no listing. EDGAR full-text search on 22 Oct 2026 shows no public registration (Unverified beyond that).

S20
Report: second AI-lab deal

Nov 2025 · secondary, level 5 · Retrieved 22 October 2026. Up to $5bn investment; the lab commits $30bn of Azure compute.

S21
Report: partner share of backlog

Aug 2026 · secondary, level 6 · Retrieved 22 October 2026. About 32% of commercial RPO estimated from the +25% ex-partner growth; an earlier estimate of 45% at Q2 FY2026. Unverified.

S22
Microsoft 365 Copilot enterprise pricing page

retrieved 22 Oct 2026 · issuer, level 3 · Retrieved 22 October 2026. List price $30 per user per month, annual commitment.

S23
Earnings date announcement

7 Oct 2026 · issuer release via aggregator, level 3 · Retrieved 22 October 2026. Q1 FY2027 results on 28 Oct 2026 after the close.

S24
Berkshire Hathaway 1986 shareholder letter

1987 · definition source · Retrieved 22 October 2026. Owner earnings definition.

S25
Everything Is a DCF Model

3 Aug 2021 · definition source · Retrieved 22 October 2026. Reverse DCF: solve for the expectations the price implies.

S26
GPU rental price index

7 Oct 2026 · secondary, level 6 · Retrieved 22 October 2026. Median on-demand H100 rent $4.20 per GPU-hour across 16 providers; earlier spot $6.62 late 2023 to $2.83 Feb 2026 (Unverified).

S27
Nebius Group filings (Form 6-K)

Sep 2025 · counterparty filing, level 4 · Retrieved 22 October 2026. Capacity agreement with Microsoft: $17.4bn over five years, up to $19.4bn (reported in the issuer's 6-K, 8 Sep 2025).

S28
CoreWeave registration statement (Form S-1)

Mar 2025 · peer filing, level 2 · Retrieved 22 October 2026. Microsoft was 62% of CoreWeave 2024 revenue: a peer case of one buyer behind GPU capacity.

S29
Report: data-centre useful lives extended

Jul 2026 · secondary, level 5 · Retrieved 22 October 2026. Useful life of data centres and office buildings extended from 15 to 25 years from FY2027.

S30
LinkedIn Corporation filings

Dec 2016 · regulator, level 1 · Retrieved 22 October 2026. Acquisition closed 8 Dec 2016; shares delisted from the NYSE.

S31
Activision Blizzard filings (Form 25)

Oct 2023 · regulator, level 1 · Retrieved 22 October 2026. Acquisition closed 13 Oct 2023; Nasdaq listing removed.

S32
Microsoft investor FAQ

retrieved 22 Oct 2026 · issuer, level 3 · Retrieved 22 October 2026. Initial public offering on 13 Mar 1986; Nasdaq: MSFT.

APPENDIX

Model inputs and sensitivities.

A. Sensitivities on the central value

ChangeValue / share
Central$326.86
WACC −1 point$397.87
WACC +1 point$275.16
Terminal capex 15% of revenue$360.16
Terminal capex 25% of revenue$293.56
Pre-depreciation margin 57.1% (FY2026)$375.98
Pre-depreciation margin 47.0% (FY2023)$278.70
Lease shift: −2 points of margin by FY2030$307.60
Diluted weighted share count$325.66
Partner stake at reported value, after tax$339.95
No deduction for long-term income taxes$330.72

B. Annual forecasts, $bn

FYRevenue BearRevenue BaseRevenue BullFCF BearFCF BaseFCF Bull
2027$373bn$388bn$400bn$2bn$14bn$21bn
2028$418bn$452bn$481bn$20bn$32bn$45bn
2029$467bn$523bn$576bn$41bn$56bn$77bn
2030$519bn$598bn$683bn$66bn$84bn$117bn
2031$571bn$677bn$799bn$108bn$129bn$172bn
2032$622bn$754bn$917bn$157bn$181bn$236bn
2033$670bn$826bn$1,030bn$167bn$197bn$265bn
2034$710bn$887bn$1,129bn$177bn$212bn$290bn
2035$742bn$934bn$1,203bn$184bn$223bn$310bn
2036$763bn$962bn$1,245bn$189bn$231bn$323bn

C. Inputs and provenance

InputValueLabelSource
Revenue FY2026$331.8bnreported by the companyS1, S7
Operating income FY2026$155.2bnreported by the companyS1, S7
Depreciation FY2026$34.3bnreported by the companyS1
Cash capex FY2026$115.9bnreported by the companyS1, S7
Finance-lease additions FY2026$24.6bnreported by the companyS1, S7
Non-GAAP EPS FY2026$17.28adjusted by the companyS3
Azure-type revenue FY2026$105.8bncalculated by usS4, S1
Shares7.4255bnreported by the companyS1, S6
FY2027 capex$175bnmanagement, secondary reportS13, S14
WACC9.57%calculated by usS8, S9