I Graded Microsoft's Latest Report on 3 Things. Here's My Verdict on the Stock.

Microsoft released its first-quarter 2027 results on October 28, 2026. Revenue increased by 19% year-over-year to $92.3 billion, while earnings per share grew by 18% on a non-GAAP basis. The stock price remained relatively stable, trading near $530, slightly below the record close of $543.45 reached on October 13, 2026. The company's cloud business, specifically Azure, drove significant growth in the quarter.

Azure's revenue grew by 48% year-over-year, surpassing the company's forecast of 44% to 45% constant currency growth. This growth rate was even higher than the 40% annual growth rate from the previous year. Despite this impressive performance, Microsoft's capital expenditures rose to $45.2 billion, indicating substantial investment.

The increase in spending has impacted free cash flow, which dropped by 27% to $18.6 billion. While operating margins increased slightly to 50%, the company's gross margin in Azure decreased to 66% due to a larger share of lower-margin Azure sales. For the next quarter, Microsoft expects revenue between $96 billion and $97.1 billion, with Azure revenue growth forecasted at 49% to 50% constant currency.

Operating margins are expected to decline slightly, and Windows OEM and devices revenue is anticipated to decline in the mid-30% range. Capital expenditures are projected to exceed $50 billion in the next quarter, leading to a cumulative spending of around $170 billion for calendar 2026. Overall, the report received a strong grade, with an A for Azure's growth, a C+ for spending, and a B+ for outlook.

The company's adjusted earnings per share have averaged about $18.04 over the past four quarters, and with the stock priced at around $530, the multiple stands at approximately 29 times adjusted earnings. Given these factors, the author concludes that the stock is reasonably valued and leans towards buying it at a lower price, as the current valuation already reflects most of the positive news.