Microsoft (MSFT) stock is up more than 20% since it reported earnings in late July. I am bullish on it. The AI story is no longer just a story - the results now show up in the numbers.
From narrative to numbers
MSFT struggled earlier this year because it was grouped with software stocks, which fell for most of the year until the last month. That has turned. Azure growth is increasingly driven by AI. Copilot now makes money across the full software stack on a per-seat basis, layered into Office, GitHub, and Dynamics as an add-on that enterprises pay extra for. Azure's revenue growth being tied to AI workloads comes straight from company disclosure, not from analyst guesses.
The business is spread across many parts: cloud, productivity software, gaming, LinkedIn, and YouTube. Multiple growth levers work at the same time. At current levels MSFT and most hyperscalers look cheaply priced given the growth they are delivering, not just promising.
The CapEx question
Everyone worries about CapEx, mostly about how it is funded. It is funded by one of the strongest free cash flow engines in the market, not mainly by debt. That is why the spending is comfortable - real demand, profit, and money-making back it. This is not speculative spending; the return on investment already shows up in the results.
I still see MSFT running an asset-light model. It has its hands in many jars, using other companies' technology - Anthropic's and OpenAI's models, plus the Foundry side, which helps across the board.
Is Microsoft behind on AI?
People ask if MSFT lags peers. On raw model ability it may be behind, but that is by choice. The models doing the heavy work inside Copilot are still driven by OpenAI and Anthropic. MSFT launched its own MAI model lineup in April 2025, well after rivals already had multiple frontier generations out. Nadella frames this as intentional - MSFT does not need MAI to top every leaderboard because it already reaches hundreds of millions of Office and Teams seats.
That installed base is the real advantage: about 450 million commercial Microsoft 365 seats that no one can match. This is why Meta (META) is turning to MSFT, spending hundreds of millions of dollars to access AI models through Azure. Meta is not alone. META, Google (GOOGL), and MSFT all have the platform that connects frontier models to the consumer - the piece companies like OpenAI and Anthropic lack. The market is underpricing that part of the story for all these names.
Valuation and outlook
The stock trades around 480, at about 24 times forward earnings. Our internal model at Aptus values it closer to 28 to 29 times, given its moat, plus a kicker from earnings growth. The narrative rides on CapEx, and that CapEx now delivers proven returns. Between the valuation and the growth, this looks attractive not just over the next 6 months but over the next 1, 2, and 3 years - higher than where it sits now.
