Microsoft’s Bond Issuance is Textbook Structural Strategy So I Buy, Not Panic Alex Sirois Mon, November 2, 2026 at 10:45 AM EST 5 min read MSFT -0.04% AMZN +4.69% GOOG +1.37% Explore stocks on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
Microsoft's $677 billion contracted revenue backlog and 50.88x interest coverage make its bond issuance a capacity expansion move, not a financial warning sign.
Alphabet's free cash flow turned -$9 billion while diluting shareholders; Amazon trades at roughly 338x free cash flow and pays no dividend.
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I bought more Microsoft (NASDAQ:MSFT) after its latest earnings report. Then reports came up that Microsoft was planning its first US investment-grade bond sale in years, and I bought again. The bond news concerned some investors. I see a company with a very strong balance sheet raising money to build faster because customers want more than it can supply.
Microsoft sells the infrastructure enterprises need to run AI, and customers have already signed multiyear contracts for it. Commercial remaining performance obligations, or contracted revenue Microsoft has yet to recognize, reached $677.00 billion, up 73% year over year. Satya Nadella told analysts that "customer demand continues to exceed available supply." With that much demand already under contract, borrowing to add capacity sooner looks like sound planning to me.
Microsoft's finances can handle the debt. Interest coverage stands at 50.88x, debt-to-equity at 0.29 and net debt to EBITDA at 0.56. At the end of September, long-term debt amounted $31.09 billion, compared with $470.51 billion of shareholders' equity. CFO Amy Hood said, "We feel like we have lots of options to be able to tap the financing markets when they make sense and they're attractive." That sounds to me like a company choosing its cheapest source of money.
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First, growth is speeding up even at Microsoft's size. In the September quarter, revenue reached $92.28 billion, up 18.8%, and Azure revenue grew 48%. Management guided for Azure growth of 49% to 50% in constant currency next quarter.
Second, Microsoft's own profits pay for most of the expansion. The operating margin is 46.78%. Operating cash flow came in at $58.00 billion, up 28.73%, and free cash flow reached $18.6 billion after the greater spending.
Third, Microsoft delivers consistently and pays me while I wait. Earnings per share of $4.89 beat the $4.72 estimate, the company's 6th consecutive EPS beat. Microsoft returned $10.2 billion to shareholders in the quarter and announced a quarterly dividend increase in September. I get all of that for about 29 times earnings.
Alphabet (NASDAQ:GOOGL) trades at about 12 times earnings, which makes it cheaper than Microsoft on that measure. However, its third-quarter free cash flow was -$9.065 billion. Alphabet is paying for its expansion partly by issuing new stock and mandatory convertible preferred stock, which can dilute existing shareholders. Microsoft is borrowing without diluting my stake.
Amazon (NASDAQ:AMZN) trades at about 33 times earnings and roughly 338 times free cash flow, while Microsoft trades at about 58 times. Amazon's trailing 12-month free cash flow was -$42.4 billion, and the company pays no dividend.
Spending is my biggest risk. Management expects calendar-year capital expenditures of approximately $170 billion. That money flows straight to the power, cooling, and networking suppliers behind the data centers (we rounded up seven of them in a free report on the AI infrastructure buildout). Free cash flow for fiscal 2026 fell 6.46%, and Microsoft Cloud gross margin declined to 66%. If AI demand cools before the new capacity starts earning revenue, I end up owning a company that overbuilt with borrowed money.
I still hold my thesis because about 30% of RPO should turn into revenue within 12 months, and Microsoft already has signed contracts behind that money.
The stock is up just 0.09% over the past year, so the price has fell behind the business. Over 10 years, it has returned 882.85%. Nadella said he has "never been more confident in the long-term returns for our investments." I keep adding because Microsoft is borrowing to fill orders customers have already signed.
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