Bill Ackman Explicitly Avoids Micron’s Volatile Cash Flows Focusing Here Instead Alex Sirois Fri, November 13, 2026 at 7:15 AM EST 5 min read MSFT -1.08% MU -0.90% ^GSPC -0.35% GOOG +1.26% NOW +0.85% 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 Azure grew 48% and its backlog jumped 73% to $677 billion, yet the stock trails the S&P 500 this year.
Bill Ackman passed on Micron for its historical cyclicality, preferring businesses with cash flows predictable with a high degree of confidence.
Capex of $39 billion cut Microsoft's free cash flow to $19 billion, and next quarter's spending is expected to top $50 billion.
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Microsoft (NASDAQ:MSFT) trades at $523. Bill Ackman prefers predictable cash flows over memory-chip cycles. That preference points straight at Microsoft, and the stock still trails the market this year.
Asked about memory names like Micron Technology (NASDAQ:MU), Ackman said Pershing Square prefers businesses where long-term cash flows can be predicted with a high degree of confidence, and he passed on Micron because of its historical cyclicality. Pershing built a Microsoft stake instead. As for Alphabet (NASDAQ:GOOGL), it exited Google parent Alphabet.
Microsoft's new Agents and Infra segment holds Azure and Microsoft 365, and it grew 25% last quarter. The shares still sit below their $559.15 52-week high after a 3.76% one-month slip, as record AI spending tests investors' patience.
Fiscal first-quarter EPS came in at $4.89, beating the $4.72 consensus. That was Microsoft's sixth consecutive beat. Revenue reached $92.28 billion, up 18.8%. Azure grew 48%, and management guided to 49% to 50% constant-currency growth for next quarter. CFO Amy Hood said, "We still have demand that exceeds supply."
Commercial remaining performance obligations reached $677 billion, up 73%, which locks in years of revenue. A forward P/E of 26 gets you a 46.78% operating margin. Daily Copilot users also rose over 5x year over year.
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Operating cash flow was $58 billion last quarter, but free cash flow was only $18.6 billion because cash paid for property and equipment hit $39.4 billion. Management expects next-quarter capex over $50 billion and roughly $170 billion for the calendar year. Most of that goes to short-lived CPUs and GPUs.
That spending pattern looks like a hardware cycle. Microsoft Cloud gross margin slipped to 66%, and management guides it to about 65%. Windows OEM and Devices revenue fell 22%, and gains and losses on the OpenAI stake make GAAP earnings swing. At roughly 58 times free cash flow, a capex mistake would cost the stock. The other way to play this expansion is through the suppliers feeding it: we covered seven of them, from power to cooling, in a free report on the picks-and-shovels side of AI.
The backlog and Azure growth support the bull case, but free cash flow has yet to keep pace with spending. Some third-party GPU contracts have been delayed to the second half of the fiscal year. Hood committed only to staying free cash flow positive in fiscal 2027. ServiceNow (NYSE:NOW) shows how hard the market hits software when margins compress. Its GAAP operating margin fell to 9.5%, and the stock now trades at a forward P/E of 21.
The bull case gets stronger if Azure hits its guidance and free cash flow stabilizes over the next two quarters. If Azure slows down while quarterly capex stays above $50 billion, the bear case gains weight.
At $523, Microsoft trades below the consensus target of $636.12, which implies 21.6% upside. Treat that target as one data point, since targets come with no guarantee. Here is how the 57 analysts covering the stock rate it:
The stock trades at a trailing P/E of 28. Microsoft is up 8.83% year to date, compared with 11.05% for the S&P 500. Over one year it is up 3.17%, while the index gained 10.81%. ServiceNow trades at $100.69 after falling 34.27% year to date.
At $523, Microsoft's bull case rests on Azure execution and backlog conversion.
Azure is the path higher. Next quarter, management guides to 49% to 50% Azure growth and total revenue of $96 billion to $97.1 billion. Hitting those numbers would show the $677 billion backlog converting into revenue as new capacity comes online over the next two to three quarters.
Because the stock falls behind the S&P 500, investors may already be pricing in part of the capex increase. Satya Nadella said, "I've never been more confident in the long-term returns for our investments."
The thesis breaks if Azure slows down while capex keeps climbing, or if free cash flow turns negative. Watch Azure growth, cloud gross margin and free cash flow every quarter.
Microsoft offers the durable recurring cash flow Ackman wants, though the shares still trail the S&P 500.
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