MSFT
☁️ Microsoft’s Intelligent Cloud, featuring Azure, grew an impressive 33% year-over-year, outpacing key competitors and driving overall company revenue to $70 billion in Q3.
💸 The company’s capital expenditures surged over 60% year-over-year to $21.4 billion in a single quarter, highlighting massive investments in AI and cloud infrastructure.
📊 Microsoft trades at a high multiple of 32 times earnings, significantly above the U.S. Treasury bond yield, suggesting investors are betting heavily on sustained, rapid future growth.
@invertirdesdecasa:
“Next company, one I’ve been asked for a lot, that we haven’t seen on IDC for over a year, Microsoft, yes, which had a pretty good earnings report before the market opened. Today, the price is practically where it was at the beginning of this year; it had very low moments, but well, a bit better sentiment towards commerce and trade policy, and the report helped it rebound. 3.2 trillion dollars is what Microsoft is worth on the stock market. Yes, it produces a lot of money and therefore is quite valuable. Let’s look at its numbers. These are the three main business segments the company has. Here is all the software offering it has for businesses, for individuals, and so on. Microsoft Intelligent Cloud, I think the name says it all, this business of cloud infrastructure, cloud services, and so on. And More Personal Computing, everything related to the licenses it sells for Windows. Here’s Xbox, gaming, and so on. Of course, a very quick review. 70 billion dollars in revenue in a single quarter. This is the third quarter of the year. Its fiscal year ends in June, growing 13% year-over-year, 15% in constant currency, meaning if exchange rates were the same as the previous year. A bit more operating expenses, cost of production, mostly server depreciation, I think it’s around here. And yet, good operational leverage for the company, yes, a reduction and good control of its OPEX, its operating expenditures, its legal, general, human resources, administrative costs, and so on. Very, very good. In fact, considering it recently integrated the purchase of Activision Blizzard. So, truly, kudos to Microsoft, a very agile company, eh, integrating a company as large as Activision Blizzard quickly and without major costs, a brilliant operating margin, I mean, it makes you take your hat off. 46% of all sales transform into Microsoft’s operating profits. It produces a lot of money, therefore it’s a valuable company. A little less in taxes and some higher interest income caused net profits to grow a bit faster. The level of shares is more or less in the same place as previous years, so we’re at the same earnings per share growth. And while we’ve already talked about these segments, which are the three I just mentioned, I’d like to show you a bit more detail regarding this segment, which is the one attracting the most attention today, the one the market follows most. What would be Azure, or the Azure cloud, is what the intelligent cloud is, quote-unquote, it’s all the infrastructure and all these large language model services, meaning, ChatGPT, Gemini, all these things you see, Meta AI, all this strong competition to see who releases the most powerful one and so on. Well, it’s all provided from the cloud service, it’s seen as cloud revenue, so to speak, and this intelligent cloud business segment grew by 33%. Much more, no, much faster, no, faster than Amazon Web Services’ 19% or 17% and faster than Google Cloud’s 28% growth, but it’s not the largest. Amazon Web Services invoices much more, and well, but it is larger than Google Cloud. In short, an excellent, excellent job, truly admirable by Microsoft in this whole area. Once again, we have what I want to conclude for you today, because these Big Techs are gradually becoming more capital-intensive, very capital-intensive, and that’s something to follow, believe me, that’s something to follow. Capital expenditures reached 21.4 billion dollars in practically one quarter. How much was Meta? 12 billion dollars. In one quarter, Microsoft spends 21.4 billion, growing at more than 60% year-over-year, meaning a lot of expense on this side. Don’t forget that all this that is spent is later depreciated and then has to be replaced to continue providing the service. Will you always earn that much? So, those things should make noise in your head. Will you always earn enough to be able to replace all those enormous capital expenses you have to make? Well, it’s an interesting question. However, beyond that and beyond the drop in free cash flows, of course, slight, but due to these higher capital expenses, what’s happening to all big techs worldwide, it’s also happening to Alibaba, to all of them, to Meta, to Alphabet, to Amazon itself, which presented a pretty interesting earnings report. I’d advise you to look at it. Even so, these cash flows are enough for what would be paying dividends and repurchasing shares at a good pace. I think there’s nothing to worry about here for Microsoft investors. At the time of recording, as I was saying, this market value for the whole company, if you buy a part of any company, you pay this price divided by the number of shares. Period, end of story. And you receive the profit it produces divided by the number of shares. You pay a part, you receive a part. It’s the same to buy the whole thing as to buy a part. Of course, if you buy the whole thing, you’d spend much more and clearly you wouldn’t be listening to this video in that case. But well, this capitalizes at 3.2 trillion in English. This year is practically over. That’s why here I only put what, unless, I don’t know, this quarter we haven’t yet seen major disruptions in the IT sector, the software sector. So it will be around 100 billion dollars in net profits. A very good year for Microsoft, I think. With which Microsoft, I mean, yes, Microsoft, here we are, with what capitalizes at about 32 times its produced profits. You pay a price that is equal to 32 times the profits that company produces. Compared against the bond, which if you pay the price of the bond today, your yield is 4.3% approximately, that is, 1 divided by 4.3% is about 23 times profits. Therefore, here you are paying a higher price than what would be, quote-unquote, more expensive compared to the bond. But we have a conclusion, right? Of course. In other words, this high multiple, following one of the phrases from Howard Marks’ latest letters to investors, investors are discounting persistence in the future. And now I’ll explain why. They are discounting a lot of growth in Microsoft’s profits, which, as you will see, is undoubtedly an excellent company.”
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