Summary

• Microsoft Corporation is riding strong enterprise AI adoption, with Azure growth and rising Office 365 ARPU supporting a structurally higher revenue mix from cloud.
• Heavy AI infrastructure investment is driving multi‑quarter cloud gross margin compression, with management guiding Microsoft Cloud gross margin to roughly 64% next quarter.
• Capex is expected to balloon to $190B in 2026, including roughly $25B from higher GPU, CPU and memory prices, heightening capex ROI concerns.
• Compared with hyperscaler peers, Microsoft’s aggressive capex has not translated into superior revenue or margin trends, raising questions about the efficiency of its AI spending.
• MSFT stock trades near its long‑term relative valuation norms versus large‑cap peers, with a 1-yr fwd P/E close to the long term median vs. peers, suggesting the stock is close to fair value.

Performance assessment

Microsoft Corporation (MSFT) has beaten the broader market index by a few percentage points since my last update on the stock. But I will say that I don't think this is

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