This article first appeared on GuruFocus.
Microsoft (NASDAQ:MSFT), the enterprise-software, cloud and artificial-intelligence giant, gained approximately 0.6% to $484.30 Wednesday morning as falling Treasury yields pulled buyers back into mega-cap technology. But forget the small bounce for a second. The bigger Microsoft story is sitting underneath the stock: Azure is ripping higher, AI demand is pouring in, and customers have already committed hundreds of billions of dollars to Microsoft’s ecosystem.
The numbers are huge. Microsoft reported quarterly revenue of $90 billion, up 18%, while operating income jumped 18% to $40.6 billion. Azure and other cloud-services revenue surged 43%, annual Azure revenue blasted through $100 billion for the first time, and commercial remaining performance obligations exploded 84% to $678 billion. That $678 billion is the number that matters. Microsoft is not spending aggressively on AI infrastructure while waiting for customers to show up. A massive wave of contracted business is already waiting to become revenue.
Microsoft Stock Rises as $678 Billion Backlog Supports AI Spending · us.finance.gurufocus
And the valuation picture just got more interesting. Microsoft traded at $485.71 on Aug. 19 versus a GF Value estimate of $577.29, leaving the stock 15.86% below GF Value. That does not automatically make Microsoft cheap, but the gap stands out when Azure is growing 43% and the commercial backlog is sitting at $678 billion. Now comes the hard part: execution. Microsoft must build enough AI capacity to feed that demand without letting data-center spending, depreciation and infrastructure costs eat away at the economics. If it can nail that equation, Wednesday’s 0.6% rebound could be the least interesting number in the Microsoft story.