Key Takeaways
- Microsoft shares gained 37.5% in the third quarter, and Jim Cramer says the company is “beginning to recoup its monster data center investment.”
- The payoff is showing up in Microsoft’s revenue, but its free cash flow has slipped for two years running, so the recoup is only just beginning.
- Microsoft’s capital spending rose from $23.9 billion in fiscal 2022 to $116 billion in fiscal 2026, and 30 million Copilot users can’t cover that bill on their own.
- The thing to watch is whether spending peaks while revenue keeps climbing toward the $467 billion analysts expect for fiscal 2028.
On Wednesday night’s episode of Mad Money, CNBC’s Jim Cramer ran through everything investors were worried about back in June at the beginning of what has been an incredible run for Microsoft (MSFT).
Azure slowing down. Too much tangled up with OpenAI. Customers who supposedly wouldn’t pay for Copilot.
“All of these worries turned out to be either wrong or false,” he said.
But Cramer saved what he called “the biggest change” for last:
“Microsoft’s beginning to recoup its monster data center investment.”
If he’s right, that’s the whole ballgame.
Just how monster are we talking?
Microsoft’s CapEx has nearly quintupled in four years, from $23.9 billion in fiscal 2022 to $116 billion in fiscal 2026, the year to June…
That last year alone was up from $64.6 billion the year before. If anything, I’d say “monster” undersells it.
(Of course, if you want to dig deeper…as my colleague laid out on Tuesday, there’s an accounting move behind how Microsoft’s capex numbers get reported, which is worth reading.)
Cramer’s case for the payback starts with Copilot, which has “30 million users and growing. They’re paying.”
Microsoft clearly wants a lot more Copilot users, too. Last Friday, CEO Satya Nadella announced “our biggest update to Copilot to date,” pitching it as “a new OS for work that spans every model, every form factor, and every task.”
Which sounds nice but obviously isn’t enough to justify the capex spending. At least not yet.
The revenue is showing up
But zoom out from Copilot to the whole company, and the payoff gets a lot easier to see…
Revenue grew from $245 billion in fiscal 2024 to $332 billion in fiscal 2026, and the roughly 50 analysts covering the stock expect $391 billion in fiscal 2027 and $467 billion in fiscal 2028.
That’s solid growth, but more importantly it defies a law of gravity: Companies this big aren’t supposed to speed up, but that’s exactly what Wall Street expects Microsoft to do.
With Microsoft Cloud revenue up 27% year-over-year last quarter (and Azure up 43% – and crossing $100 billion for the first time!) – there’s every reason to think that such an acceleration is possible.
And it’s only made possible by the data center buildout.
Now, Cramer’s a little more confident than I am. He thinks data center spending “might be even peaking and profitability is beckoning,” and that Nadella and CFO Amy Hood knew “those data centers will last a lot longer than people thought.” If capex levels off while revenue compounds at the rate analysts expect, free cash flow should finally start to climb. That’s the bet investors made this quarter.
So yes, Microsoft’s monster investment is beginning to pay off, at least on the top line. Of course, nothing on these charts shows capex peaking yet, and fiscal 2026’s $116 billion is the biggest bill so far.
So what is Microsoft stock actually worth?
TIKR lets you forecast the future price of any stock in less than a minute. Just enter a few assumptions into TIKR’s valuation model and see what Microsoft could be worth. Start from Wall Street consensus estimates, or adjust the inputs to reflect your own view of the business. It’s free to use.
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