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QS Research · Michael Burry's Scion Capital analyst template · 2006

MICROSOFT CORP (MSFT)

As of 2026-11-02 · 12/15 boxes filled from SEC filings and market data

Conclusion: PASS

Conviction low · base case -1% · downside -21% · upside +20%

At $521.92 (N1), MSFT is a secularly growing, high-quality compounder, but the market already prices that: TTM P/E is 27.2x (N29), EV/EBITDA 19.1x (N27), and FCF yield just 1.5% (N30) because TTM capex of $135.92B (N17) consumes most of $195.88B operating cash flow (N16) to leave only $59.96B FCF (N18). Using TTM to Sep 30, 2026 EBITDA of $201.49B (N14) and net cash of $24.64B ($64.51B cash N21 minus $39.87B debt N22), I set the base at 19x EV/EBITDA (the midpoint of the 15x–23x comp range): $201.49B x 19 = $3,828.3B EV + $24.64B net cash = $3,852.9B / 7,426.19M shares (N5) = about $519, or -0.6%; this is below today’s price and far from the +30% long threshold. The downside at 15x is $410 (-21%) and the upside at 23x is $627 (+20%), so risk/reward is balanced and there is no edge either way. The AI buildout is real (Azure +48%, RPO +73% in Q1 FY2027) but the heavy capex and premium multiple mean the market is not missing enough to justify a long or short; I pass.

Key numbers

The 15 boxes

  1. ✓ 1. Long-form business notes

    Microsoft operates three reportable segments: Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. From FY2021 to FY2026, annual revenue grew from $168.09B to $331.84B, with operating income rising from $69.92B to $155.24B. Revenue drivers include Azure consumption-based cloud services, Microsoft 365 subscription/ARPU growth, and Windows OEM license volume. The business shifted from the FY2021 intelligent cloud/edge framing to an FY2026 AI-centric strategy across the stack.

  2. ✓ 2. Competitive advantage

    Microsoft has meaningful competitive advantages from platform-based ecosystems with network effects and scale, internal product development with differentiation and technical control, and established Windows and gaming positions. FY2021-FY2026 financials show revenue, gross profit, operating income, and net income rising every year. However, competition is intense with low barriers in many areas, low/no-cost OS threats, and heavy AI/cloud investment that could pressure margins.

  3. ✓ 3. 10-Q takeaways

    Microsoft's Q1 FY2027 (three months ended Sept 30, 2026) revenue rose 19% to $92.3B, with Microsoft Cloud up 30% to $63.9B and Azure up 48%, while Windows OEM/devices fell 22% and Xbox content/services fell 2%. Microsoft Cloud gross margin declined to 66% on Azure mix, but operating income rose 21% to $45.9B; adjusted net income (excluding OpenAI gains) rose 18% to $36.4B. Operating cash flow was $58.0B, investing cash outflow was $42.0B on heavy datacenter capex, and buybacks were $2.9B. Updated risks center on AI competition, datacenter supply constraints, and trade tariffs.

  4. ✓ 4. Corporate governance
  5. ✓ 5. Overview of the prior 3 years of 8-K filings
  6. ✓ 6. Other significant filings
  7. ✓ 7. Chronology of significant news and events
  8. ✓ 8. Comparables valuation interpretation
  9. ✓ 9. Insider trading interpretation
  10. ○ 10. Earnings-call notes
  11. ○ 11. Impression of the shareholder letter
  12. ○ 12. Scuttlebutt overview
  13. ✓ 13. Valuation and risk/reward summary
  14. ✓ 14. Current price suppression and potential catalysts

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