Microsoft is in a situation not often seen in a company this large: revenue is growing at 18%, cloud at 26% and Azure at 40%, operating margins are near 50% and earnings per share are growing at over 20%. Yet the stock trades at roughly 22 times expected earnings - a multiple that's consistent with a "quality big tech" but not a company that's simultaneously building the world's largest AI infrastructure and reporting 51% growth in its commercial backlog.
This is the basis of our view: Microsoft has a combination of growth, margins, balance sheet and revenue visibility that alone could justify higher multiples. The fact that valuations are only slightly above the long-term average doesn't look like an "AI bubble", but rather a period where the market is underestimating how strongly and for how long AI can translate into numbers - and that's the type of situation where it makes sense to analyze the company as a candidate for a long-term core position.