This is a terrific chart. The best chart for any of the Mega Caps. There is a breakout to a new all-time high from a serious chunk of consolidation, and Coppock is turning higher from close to zero. The chart message is clear. Microsoft is a strong buy.
It is running neck and neck with Nvidia for the accolade of being the world’s largest company by market value. Microsoft has had two incarnations. The first under Bill Gates was the great software company in the age of desktop computing. The second, under Satya Nadella, who has been described with good reason as the world’s greatest CEO, was a company which adapted superbly to the cloud era. The possibility is that, still led by Nadella, Microsoft is going to be a huge success in the age of AI. If it isn’t, it won’t be for lack of trying.
Microsoft is one of my top 12 stocks, so I have already nailed my colours to this one. I have been reading an analysis of Microsoft on Seeking Alpha.
With the broad adoption of generative AI solutions (with ChatGPT paving the way for other players), the already dynamic growth of the cloud services market accelerated. According to Synergy Research Group, the cloud market value amounted to ~$230B in 2022 and since then, it grew by nearly $100B to over $320B in 2024.
It’s worth recognizing that Microsoft is only second to Amazon (AMZN) in terms of cloud market position – its Azure environment recorded the most dynamic revenue growth in the sector during the last couple of years and its market share amounted to 21% in Q4 2024. As I mentioned, Amazon remains a market leader, with its AWS environment holding ~30% of the market. Still, MSFT’s solution remains a top-tier contender with chances to overthrone AWS during the years to come given its intense adoption of AI solutions, heavy CAPEX which amounted to ~$60B during the last nine months, and ongoing growth momentum.
Just think about the world that surrounds us – the impact Microsoft had on the evolution of the job market and basic business operations (across all industries) was and still is revolutionary. Solutions we now consider as basic tools, essential in our daily operations, such as MS Word, MS Excel, PPTX, etc. Microsoft revolutionized the way corporations and small businesses operate. That’s why it will always remain high on my list of “the best businesses ever created”.
We often focus mostly on the fastest growing segments of businesses – in MSFT’s case, Intelligent Cloud led by Azure. However, I like to return to basics and appreciate that MSFT’s largest segment, most common to most of us, still records double-digit growth rates. When I compared Q1-Q3 2025 to Q1-Q3 2023 for the Productivity and Businesses Processes segment, I was happy to find that the segment recorded a CAGR [compound annual growth rate] of over 13% during that period. Yes, substantially lower than Intelligent Cloud (20%), but still very meaningful to the business, especially given the largest share of this segment in MSFT’s revenue structure.
Microsoft reached 46% of operating income margin during the Q1-Q3 2025 period, outperforming the same periods of previous years (2023 and 2024). While we saw a decrease within the Intelligent Cloud segment when compared to last fiscal year (42% vs 44%), the Productivity and Business Processes segment combined with More Personal Computing offset that decline and led the overall profitability upward (58% vs 56% and 27% vs 25%, respectively).
Such an outstanding profitability (yes, 46% operating income margin is a top-tier level when combined with a dynamic revenue growth) constitutes a safety cushion for any disruptions on the geopolitical front (e.g. trade war escalation or digital taxation, etc.). From my perspective, what’s crucial is that Microsoft continues investing heavily in future initiatives. My M&A experience leads me to believe that MSFT could reach even higher profitability and cash flow generation (in the short-term) if it wanted to, but naturally – MSFT has a long-term perspective in mind and that’s the same approach I have to its position in my portfolio.
Still, despite significant CAPEX ($64B during fiscal 2025), Microsoft was able to provide meaningful rewards to shareholders in terms of dividends (~17.9B) and share repurchases (~13.9B). On top of that, MSFT’s cash position increased by $10.5B during this period even despite these outflows – highlighting MSFT’s “cash flow beast” characteristic, which allowed it to end the quarter with $28.8B of cash and its equivalents at hand.
Seeking Alpha, 28 May 2025, Cash Flow Venue (pen name of the author)
The above establishes that Microsoft is a high-quality business, situated at the heart of the technology revolution, and well-positioned to deliver outstanding returns to shareholders. If a widow with three young, fatherless children wanted one safe investment for a substantial inheritance, Microsoft would spring to mind. It is a great business, with a great manager, situated at the heart of one of the most important revolutions of our times. It is investing in the future on a massive scale and is a cash machine. It is not just a blue chip, it is a chip of the deepest purple.
There is one piece of magic that would make Microsoft an irresistible investment, an important ‘something new’.
AI is likely to be part of this. Nvidia’s Jensen Huang describes data centres in the AI era as AI Factories where you put in data and energy and output valuable tokens. Microsoft has taken this lesson on board.
We processed over 100 trillion tokens this quarter, up 5x year-over-year, including a record 50 trillion tokens last month alone. And four months in over 10,000 organizations have used our new agent service to build, deploy and scale their agents.
Satya Nadella, CEO, Microsoft, Q3 2025, 30 April 2025
Something new is almost what Microsoft is about with its focus on innovation.
In closing, we are rapidly innovating to expand our opportunity across both consumer and commercial businesses in just a few weeks at our Build conference, we’ll share how we are creating the most powerful AI platform for developers and I encourage you to tune in.
Satya Nadella, CEO, Microsoft, Q3 2025, 30 April 2025
I can’t find anything seismic, something new to drive Microsoft shares strongly higher, but the chart suggests that something may be bubbling under the surface. Maybe I am underestimating the potential impact of Microsoft sitting at the heart of the AI/ technology revolution.
Another thing I like is the explosive quality of the latest breakout.
I have just found a wonderful quote from the late Charlie Munger, for so long Warren Buffett’s second-in-command at Berkshire Hathaway. He is talking about the patience and intestinal fortitude needed to be a successful long-term investor.
“I think it’s in the nature of long-term shareholding with the normal vicissitudes in worldly outcomes and in markets that the long-term holder has his quoted value of his stock go down by say 50%,” Munger said during an interview with the BBC back in 2009.
“In fact, you can argue that if you’re not willing to react with equanimity to a market price decline of 50% two or three times a century, you’re not fit to be a common shareholder and you deserve the mediocre result you are going to get – compared to the people who do have the temperament who can be more philosophical about these market fluctuations.”
Charlie Munger, interview with the BBC, 2009
I don’t think Munger was a Coppock follower, so he would not have been aware of the argument that shares are safe to hold while Coppock is rising, but caution is needed when Coppock is falling. On the other hand, one can hardly argue with the results achieved by his patient approach.
Share Recommendations
Microsoft MSFT
