Microsoft Corporation (MSFT): A Bull Case Theory 

We came across a bullish thesis on Microsoft Corporation on LongYield’s Substack. In this article, we will summarize the bulls’ thesis on MSFT. Microsoft Corporation’s share was trading at $481.63 as of January 28th. MSFT’s trailing and forward P/E were 30.14 and 29.94 respectively according to Yahoo Finance.

Microsoft Corporation develops and supports software, services, devices, and solutions worldwide. MSFT delivered a strong start to fiscal 2026, with total revenue rising 18% year-over-year to $77.7 billion, operating income up 24% to $38.0 billion, and GAAP net income of $27.7 billion, or $3.72 per share.

Excluding fair-value adjustments from its OpenAI investment, non-GAAP net income reached $30.8 billion with EPS of $4.13. Microsoft Cloud, encompassing Azure, Office 365, and Dynamics 365, grew 26% to $49.1 billion, driven by surging demand for AI services and Copilot integrations, which CEO Satya Nadella described as fueling the company’s “planet-scale cloud and AI factory.”

Growth was broad-based across segments: Productivity & Business Processes rose 17% on Microsoft 365 seat growth and premium subscriptions, LinkedIn expansion, and Dynamics 365 sales; Intelligent Cloud jumped 28% with Azure and cloud services up 40%, reflecting higher AI consumption and long-term contract expansion; More Personal Computing increased 4%, supported by Windows OEM demand and strong Search advertising, offsetting slight declines in gaming hardware.

Margins were impacted by heavy AI infrastructure investment, with gross margin percentage dipping despite higher absolute margins, while operating expenses rose 5% for engineering hires and datacenter expansion. Microsoft’s partnership and equity stake in OpenAI introduced $3.1 billion of earnings volatility, highlighting non-cash mark-to-market effects.

Strategic initiatives include global datacenter expansion, cybersecurity integration, hardware refreshes, and industry-specific cloud solutions. Competitive pressures remain from AWS, Google Cloud, and emerging providers, and regulatory scrutiny and macroeconomic factors pose additional risks.

Looking ahead, Microsoft guided Q2 FY26 revenue of $79.5–80.6 billion with ~37% Azure growth, reflecting continued AI demand and capacity constraints. With strong revenue growth, market share gains, and deepening AI adoption across its ecosystem, Microsoft is well-positioned to convert its early AI investments into sustained value, though high capex, competition, and regulatory oversight may temper near-term margins.

Previously, we covered a bullish thesis on Microsoft Corporation (MSFT) by Ray Myers in May 2025, which highlighted the company’s leadership in productivity software, gaming, cloud, and AI, projecting long-term growth from secular trends and strategic acquisitions. MSFT’s stock has appreciated by about 6.28% since coverage. LongYield shares a similar thesis but emphasizes Q1 FY26 results, AI-driven cloud growth, and operational updates.

Microsoft Corporation is on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 312 hedge fund portfolios held MSFT at the end of the third quarter which was 294 in the previous quarter. While we acknowledge the risk and potential of MSFT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MSFT and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Disclosure: None.