Going into Wednesday afternoon, Microsoft was down roughly 20% for the year and trading at a lower earnings multiple than the average company in the S&P 500.
A $2.9 trillion business, priced like the market had already decided the AI spending was a mistake.
And for most of this year, owning it has been tough.
Which brings me to the number almost nobody led with…
Microsoft's commercial backlog is now $678 billion… a number that grew by $51 billion in three months.
For context, Microsoft's total revenue for the entire fiscal year was $331.8 billion.
So the pile of already-signed, not-yet-delivered business is more than two years of the whole company's sales.
If you’re Microsoft, you don't commit $190 billion to data centres because you're feeling optimistic. You commit it because you've signed contracts you now have to physically deliver on.
Azure grew 43% last quarter, up from 40% the quarter before. Growth rates are supposed to slow as the base gets bigger… and this business just crossed $100 billion in annual revenue for the first time with growth speeding up instead.
And growth is STILL increasing… and they still can't build capacity fast enough to meet demand.
Revenue came in at $90 billion, up 18%… with operating margins actually increasing to 45% while everyone was busy explaining that AI spending would crush margins.
Now the part I'm less hot on…
Roughly 65% of the earnings beat came from a $3.2 billion paper gain on Microsoft's stake in Anthropic. Google had a similar phenomenon last week with their SpaceX stake.
The consumer side is also weak. Windows, Xbox and Surface fell 4.4%, and management guided Windows revenue down in the high teens for the coming year, largely because memory chips have got expensive and PCs cost more.
None of that changes the setup though.
Meta reported similar underlying strength and fell 8%. Microsoft rose the same amount.
The difference wasn't the quality of the business.
It was that Microsoft handed the market a specific contracted that made the spending look like a consequence of demand rather than an assumption of it.
I remain bullish
Oliver