NEW YORK, July 14, 2026, 14:08 EDT
- Microsoft was around $387, putting its value at $2.88 trillion, about 23 times trailing earnings. That’s nearly 19% under the average multiple for Amazon and Alphabet.
- Capex for the fourth quarter will top $40 billion, or about 45.8% of revenue based on the midpoint of Microsoft’s outlook. This compares with 38.5% in the March quarter.
- Just around 25% of Microsoft’s $627 billion backlog is projected to turn into revenue in the coming year.
Microsoft NASDAQ:MSFT heads toward its July 29 earnings with bulls saying the recent drop and lower valuation may clear the way for a bounce. The question is how quickly AI demand will show up in cash flow versus heavy spending. Management projects Q4 capital expenditures of more than $40 billion with revenue between $86.7 billion and $87.8 billion. That puts capex at least 45.8% of sales, using the midpoint. The market wants evidence.
Shares slipped about 1% to trade near $387 Tuesday afternoon. They’re down around 21% in 2026, putting Microsoft’s market cap at $2.88 trillion. The trailing P/E sits at about 23, or roughly 19% less than cloud peers Amazon.com NASDAQ:AMZN and Alphabet NASDAQ:GOOGL. Analysts say the lower multiple is about timing.
The gap in valuation shows up when compared with the two firms that are most tied to the same AI infrastructure cycle.
| Company | Share price | Trailing P/E | Latest total revenue growth | Latest cloud growth |
|---|---|---|---|---|
| Microsoft | ~$387.00 | 23.0x | Revenue up 18% | Azure grew 40% |
| Amazon | ~$246.44 | 29.5x | Revenue rose 17% | AWS up 28% |
| Alphabet | ~$357.89 | 27.3x | Revenue climbed 22% | Google Cloud jumped 63% |
Multiples and prices reflect real-time market data. Growth rates come from each company’s latest quarter, so comparisons aren’t perfect. Microsoft trades at a discount, with Azure’s reported growth topping AWS but trailing Google Cloud. Still, the numbers aren’t a blank check.
The harder test for Microsoft is comparing its own growth to last year. Spending is going up.
| Microsoft metric | Fiscal Q3 actual | Fiscal Q4 outlook |
|---|---|---|
| Revenue | $82.9 billion | $86.7 billion to $87.8 billion |
| Capex including finance leases | $31.9 billion | Over $40 billion |
| Capex as a share of revenue | 38.5% | Above 45.8% |
| Azure growth, constant currency | 39% | 39% to 40% |
Q4 ratio is based on the revenue guidance midpoint. Constant currency cuts out FX shifts.
The 45.8% number tracks investment levels, not actual cash moving out the door, since finance lease terms can shift when payments happen. For the March quarter, Microsoft brought in $46.7 billion in operating cash, spent $30.9 billion on property and equipment, and had $15.8 billion left in free cash flow after those costs. Cash used for infrastructure ate up about 66% of operating cash. Cash conversion is key.
Parsing the $627 billion backlog shows Microsoft’s remaining performance obligation—signed deals for revenue not yet booked—climbed 99%. Only about 25% of that, or $157 billion, is expected to hit revenue in the next 12 months, with an average duration near 2½ years. Paid Microsoft 365 Copilot seats reached over 20 million, up from 15 million last quarter, so that part of monetisation could come sooner. But bigger payback sits beyond the next year, making timing key.
The gap is obvious. Analyst Mark Moerdler called it “a bit of a disconnect” on capex versus revenue growth. CFO Amy Hood said the main focus is “converting it to revenue as quickly as we can.” CEO Satya Nadella said Microsoft is “moving aggressively to add capacity.” Management sees the gap. Microsoft
But the ratio works both ways. Finance leases can inflate reported capex without matching cash out the door that quarter, while speeding up capacity work might put Azure over its 39%-40% constant-currency goal. There’s downside if about $5 billion in extra component costs this quarter, plus Microsoft Cloud margin guidance at around 64%, keeps cash returns tight even with a revenue beat. Outcomes could swing a lot.
Microsoft watchers are set to look for signals on Azure growth on July 29, the company’s first outlook for fiscal 2027 spending, and signs that free cash flow is picking up. The shares trade at a valuation discount, so that cushions things a bit, but investors still want to see backlog converting to sales and cash. A simple earnings beat may not satisfy.
Related articles: NASDAQ:MSFT
