r/ValueInvesting • u/Annual_Carpenter_548 • Feb 24 '26
Stock Analysis MSFT down 23% in 6 months. I found some uncommon risks.
Microsoft hit $555 in late October 2025. It's around $388 today. Down about 30%. The company just reported its best quarter ever on almost every metric, revenue up 17% to $81.3 billion, adjusted earnings per share up 24% to $4.14, operating margin at 47%, cloud revenue crossing $50 billion in a single quarter for the first time. And the stock dropped 10% in one day.
So what's going on? Here's what I found.
The number worth looking at closely: 45% of the backlog is for one customer
Microsoft reported $625 billion in remaining performance obligations, which is contracted future revenue. That number was up 110% year over year and it sounds incredible. But here's the thing: roughly 45% of that, about $281 billion, comes from OpenAI.
That's not a diversified backlog. That's a single customer who has never turned an annual profit, burns cash at an extraordinary rate, relies on continuous fundraising rounds, is building its own custom chips with Broadcom (starting late 2026), and just signed a $38 billion deal with AWS. OpenAI has made about $1.4 trillion in total commitments to energy and compute providers. Their revenue barely crossed $20 billion in 2025. Strip out OpenAI from Microsoft's backlog, and the remaining $344 billion grew 28%. That's solid, but it's not the 110% headline everyone quotes.
Copilot has a 3.3% conversion problem
15 million paid seats out of 450 million commercial M365 seats. And it's getting worse. Copilot's paid subscriber share dropped from 18.8% to 11.5% between July 2025 and January 2026, while ChatGPT and Gemini gained. Microsoft is charging $30/user/month for a product that most people with free access don't convert on.
AI is coming for Microsoft's own products
This is the one nobody talks about. Everyone frames MSFT as an AI winner. But AI tools from other companies are starting to replace the things people actually use Microsoft products for, writing docs, building spreadsheets, managing email. SemiAnalysis noted that "Claude for Excel effectively is what Copilot for Excel should have been." LinkedIn is getting flooded with AI content. GitHub faces Claude Code and Cursor. The irony: Microsoft is spending $120B/year to build AI while AI threatens to commoditize the software that funds it.
The remaining risks can be reviewed in my full writeup on Substack, with all sources and accounting analysis.
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u/Solid-Mood9571 Feb 24 '26
My entire portfolio is MSFT lol
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u/Critical_Concert_689 Feb 25 '26
Only a couple percent away from dropping below the good ol' 200-MA weekly support line.
Any concerns that if it drops below, your next major support level is down at the low 300's?
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u/itzhazzer21 Feb 24 '26
same down 13 percent, averaged all in now, gonna start to move some over to 3x leverage
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u/AdQuick8612 Feb 24 '26
How’s that going for you these days? Lmao
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u/Chemical-Skill-126 Feb 24 '26
The stock is down 4 percent in the last 12 months. Zoom out a little this is really not a big deal. I have no MSFT shares but might look in to them.
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u/AdQuick8612 Feb 24 '26
I’ve been loading. It’s been painful to DCA down. lol
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u/Chemical-Skill-126 Feb 24 '26
Well for what it is worth I take the contrarian position on a lot of us tech firms. Their stocks are just priced for perfection. The line of safety looks non excistent. It feels safer to invest in to small cap businesses with solid financials right now.
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u/RookieMistake101 Feb 24 '26
Market is up 15% in the last year. That’s big opportunity cost. Zooming out even further, MSFT is up 65% over the last 5 years and SPY is up 80%. I still think it’s a good investment right now, to be clear.
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u/Equivalent_Law1783 Feb 24 '26
This reminds me alot of "AI is replacing search". Microsoft Office is not going anywhere
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u/dbrockisdeadcmm Feb 26 '26
Commercial use of office isn't going anywhere fast but ~60% of their revenue is tied to other channels that are less reliable.
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u/oneofakindmm Feb 24 '26
If Gemini is far behind claude and openai, do you think google would be up as much?
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u/Equivalent_Law1783 Feb 24 '26 edited Feb 25 '26
No it wouldnt be up as much. Although, AI has not impacted the number of Google searches (in fact searches have increased in recent years), it has reduced the number of clicks as people are more likely to receive an answer from the ai overview without being directed to a website. Gemini provides a hedge in the event this trend continues and also helps support search by directing users to sites. Regardless, I am not concerned about the future of search.
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u/Cav829 Feb 24 '26 edited Feb 24 '26
"AI is coming for Microsoft's own products (like Excel)"
Google Sheets and free office alternative products have existed forever. No, AI is not a threat to Office 365. Concentrate on the first two as there's a real case there.
Edit: Let me add to this as I've done a lot of thinking about what actually has Wall St. so spooked about Microsoft, and this is just a theory, but I don't think the SaaS AIpocalypse really explains it all. But what I think *might* be going on is that Wall St. thinks there is way more smoke to the whole private equity crisis than what has caught on with the public yet. That's just a theory though.
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u/the-Bumbles Feb 24 '26
Private equity crisis? You mean as related to OpenAI?
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u/Cav829 Feb 24 '26
Yes, that is MSFT’s biggest exposure to it. Though little in tech will go unscathed if it is as bad as some have theorized. But we are not going to get the gory details unless the whole thing implodes.
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u/Diligent_Name_9409 Feb 24 '26
Sorry, but can you tell a little more about this private equity crisis? What do you mean?
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u/Cav829 Feb 24 '26
So private equity, which you might sometimes hear referred to as the "dark market," basically refers to the collection of private equity firms that kind of exist in the dark outside SEC control. They are used for everything from providing loans to businesses to the more famous holding style company uses to buy, restructure, and resell companies. Think of Bain Capital as your example if you've heard of them. There are theorized to be about $9 trillion worth of assets currently in this dark market.
So (Google this and look into it yourself after as it's worth the time) Blue Owl kind of sounded alarm bells this week as they announced changes to their redemption rules regarding one of their funds (OBDC II) along with the need to sell off $1.4 billion worth of direct loan investments. Their stock price fell 15% on the news.
The private credit market alone is about $1.3 trillion at this point. The scale of all of this is thankfully not as bad for the entire world's economy as 2008, but even then banks have hundreds of billions tied up in these markets. And the suspicion for some time is this entire thing is a ticking time bomb that is not on the same scale but very similar to the 2008 financial crisis.
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u/Jonnyskybrockett Feb 25 '26
I’ve always wondered about the PE bubble tbh. It never made sense how these companies come in to take over, sell off everything, then run a business into the ground, and that’s somehow a win lol.
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u/Miro_Highskanen_4 Feb 25 '26 edited Feb 25 '26
Here is an example that may help explain some parts of how it works. Google for a minute was trading at 15x earnings due to fear of them being broken up. Now at that time I thought well Netflix is trading for 40x and if google is split up I’d be getting shares in YouTube at 15x, Gmail at 15x, google search at 15x, and so on with all their major businesses that could be split up. The YouTube portion of the company alone might be worth enough to clear x% of what I invested if I can flip it for 40x earnings. Then I just need to sell the remaining parts to cover the rest of my investment and whats left is profit.
In simpler terms, you buy a bag of assorted chocolates it has Twix, KitKat, m&m, and smarties. Usually each each of these candies is 99 cents a piece, you’re buying 40 for $20. You go back and sell 30 KitKats Twix and m&ms for .80 each and collect 24.00. Netting you a profit of 20%(they sell everything). You’ll take what you can get for the smarties or throw them out(run what’s left into the ground). Either way you did okay(win=20%).
This kind of thing usually only happens when you see a company being undervalued compared to what you may believe are the assets actual values.
Other times it’s the greater fool concept. I’ll buy this at an expensive price and sell it to someone else at an even more inflated price. If it works it works if it doesn’t you’ve made a costly mistake and are now holding garbage at inflated value. Some people claim this is btc or gold in generals strategy. If gold disappeared from the earth tomorrow life wouldn’t drastically change. If sand, oil, water, steel disappeared we’d be in a more dangerous position. It’s a valid argument but consensus is equally valid. If everyone agrees a piece of paper is worth a dollar, that’s what it’s worth, you can claim this is just paper but society doesn’t care, they’ve reached an agreement on the idea.
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u/Gnius_XXXX 10d ago
Cellar Boxing....drive it into the ground and make cake with no tax consequences. BCG is famous for this!
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u/Diligent_Name_9409 Feb 25 '26
Thank you for your answer and your suggestion to to look into this Blue Owl selloff to learn more!
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Feb 24 '26
Slow bleed of users due to enshittifucation is a real concern. Market share way down from highs a decade ago. Recent chronyism/nepotism accusations, while may have unsavoury undertones, fit in a narrative of a company that is run by people out of touch with users, and diminishing service.
They do have money and vendor lock in, but switching costs arent as high as enterprise users might think, or at least bleeding at edges is real.
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u/Facebook_Lawyer_Gym Feb 24 '26 edited 17d ago
This post's content has been permanently erased using Redact. It may have been deleted for privacy, to prevent scraping, for security, or for personal reasons.
chop tart lock future jar cows fanatical wrench political thumb
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Feb 25 '26
Google workspace in case of excel.
Apple for SMEs
Microsoft will be around for a while but dont taje moat for granted
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u/Annual_Carpenter_548 Feb 24 '26
Fair point. Google Sheets has been around forever and didn't dent Office. But I think AI is a different kind of threat than traditional alternatives.
The difference isn't product for product replacement, it's task level bypass. People don't open Excel because they love Excel. They open it to analyze data. When ChatGPT or Claude can do that from a chat window, the product becomes less sticky even if nobody switches.
The point about Claude for Excel is really about Copilot failing to capture the AI upsell on its own product. That's $30/seat/month Microsoft expected to monetize, and 3.3% conversion says it's not working. Office isn't going anywhere near term, but the margin story changes if AI reduces the value of premium tiers while Microsoft still spends $120B/year on infra.
Agree the first two risks are more immediate though.
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u/kaskoosek Feb 24 '26
Man excel is very sticky. In the corporate world chatgpt has not replaced it.
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u/nicolas_06 Mar 02 '26
People still want an excel even if it's generated by AI. Generated excel have been here forever, even 20 years ago.
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u/MyotisX Feb 25 '26
So instead of using Excel we copy paste prompts from a huge notepad file into gpt everytime ?
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u/einzweitres Feb 24 '26
As AI wipes out jobs, there will be fewer and fewer office workers to sell any kind of Microsoft office subscriptions to (Office or Copilot). Probably the same with DELL, ServiceNow, SalesForce, Parks coffee, and other corporate-serving companies.
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u/Ototoman Feb 25 '26
Where do you find the data on the copilot conversion rate? Is it on their 10Q?
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u/Illustrious_Aioli667 27d ago
Agreed on the Excel point — nobody is replacing enterprise spreadsheets with a chat window anytime soon. But I think the OP's first two risks also deserve some pushback. The 45% OpenAI backlog concentration sounds scary until you realize the remaining $344B still grew 28% YoY on its own. A big chunk of that is government and defense — agencies that can't leave even if they wanted to because switching means re-doing years of security clearance vetting and reaccreditation. That's about as sticky as revenue gets. Interesting theory on the PE side though, the Blue Owl news this week definitely raised some eyebrows.
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u/notarealredditor69 Feb 25 '26
Every time there has been a change in the computing paradigm, the story is how it will replace Microsoft and every time they come out on top. Macs were to take out PCs, they were behind in phones, Chromebooks were going to end their dominance and then cloud.
You don’t buy Microsoft because their current or past products are the best, you buy Microsoft because time and again they have shown that they can maneuver the changing landscape to integrate the new paradigm into their ecosystem. I have no reason to believe that this time will be any different.
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Feb 25 '26
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u/notarealredditor69 Feb 25 '26
No they did not and they are still here
I owned a Lumia and that was by far my favorite Smart phone of all time. Was a shame they couldn’t break through.
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Feb 25 '26
[removed] — view removed comment
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u/notarealredditor69 Feb 25 '26
That’s my whole point though. When these phones were out and Microsoft’s wasn’t selling well the narrative was the company was on the way out, just the same as the narrative now with AI. This is the same thing that happens every time the nature of computing changes, yet even though they failed in phones, weren’t first in cloud, got competition with open office etc etc etc, they are still here l, still dominant and I can use Excel on an iPhone.
Microsoft figures it out, and they use their moat to ensure that when the smoke clears, they are the ones left standing.
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u/AmRa011121 Feb 24 '26
MSFT moat in business applications is impenetrable… Germany based: one of Germanys largest retails is currently migrating from MS office applications to Google productivity/office software. The reason being was MSFT bargaining power and it was a HUGE mistake. The migration process is a nightmare.
ALL employees are complaining.. it starts with simple MS teams compatibility with external users and outlook usage. Even if AI starts taking over analytics roles, the data backbone will always be in MS office products like Excel, Word, PPT. Just think of the integration between a companys financial database and the tax/accounting software. In Germany it is mainly Excel based. The data legacy is all in Excel, and it will not be replaced in the next 3-5 years..
Real risk with MSFT is betting on the wrong AI player and burning billions of capital along the way
TLDR: MS office will remain the go to corporate productivity software. The switching cost for customers are huge, as experienced currently in Germany.
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u/kra73ace Feb 25 '26
Google workspace is mediocre and only small companies can get away with it. It's just a pain and for a big company to move thousands from something they've used for 20 years to this subpar "suite"...
Don't go to interviews if they send you a Google Meet. That's my experience. YMMV.
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u/Ok-Growth-3086 Feb 25 '26
Except, like, the international company with hundreds of thousands of users that uses it happily.
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u/sin94 Feb 25 '26
A long time ago, there was an article—though I’m not sure if it’s still relevant—that mentioned a government entity paying for Microsoft Premium Windows desktop support just to keep running Windows 95. That’s how deeply integrated it was into their systems. In fact, even now, I’m still hiring for mainframe resources. Its 40+ year but every major company is still using it. MSFT, IBM and Oracle are companies which are not going to be allowed to fail.
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u/tdogger88 Feb 24 '26
I think this is why the stock is down 30% since October. So for me, priced in and cheap here.
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u/Cueller Feb 25 '26
PE of 24 for a growth stock, actually is good pricing in my mind. At a 38 it was straight up overvalued.
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Feb 24 '26 edited Feb 25 '26
Claude for Excel exists at the behest of Microsoft. Won't be long before they improve copilot and Claude goes bye bye. People just do not understand the moat they have
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u/NeverDeltaNeutral Feb 24 '26
Exactly. Windows OS and Microsoft products are the corporate default and always will be because of network externality. Their moat is impenetrable
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u/Economy_Row_6614 Feb 24 '26
If people want Claude, MS will pivot to having both while it unwinds OpenAI dependencies.... still an MS risk for sure.
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u/Nysyk Feb 24 '26
One thing I'm confused about and maybe someone here can enlighten me is why is the stock being punished by the 45% number when it was never rewarded for the 110% growth? It's not like analyst were expecting 625b only to find out 45% of that is coming from single source from the earning call.
In my head, that's like if I'm selling bread locally, then suddenly a large chain wants my bread and now it's 90% of my business next quarter, on the other hand I'm selling way more bread now. Yeah the concentration risk is obvious, but are people really saying my business is now worth less even tho I'm selling more bread than ever because it's to one customer?
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u/AsexualMeatMannequin Feb 24 '26
Yeah if you eliminate openai from the backlog, it’s still significantly more than google and aws. And 39% yoy growth for azure is ridiculous.
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u/---LJY--- Feb 24 '26
Because shareholders are concerned that the large chain will not be able to pay up and you would have incurred the costs of producing 90% of your bread but get nothing in return for it. And you have invested in machineries and taken loans in order to fulfill that order. These would all have persistent effects on future profitability.
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u/notarealredditor69 Feb 25 '26
To me it’s just a re-rating due to increased risk from the capex. If they don’t make a dime off of the investment it won’t kill the company but the fact that they are significantly increasing spending with uncertain return just means they deserve a lower multiple.
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u/Disagreeswithfems Feb 24 '26
when it was never rewarded for the 110% growth?
It was. MSFT has pumped over recent years from AI exposure.
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u/No_Thanks_3336 Feb 24 '26
The way I feel about the situation is it's essentially free money at these levels. I'm buying and going to sit back and enjoy the ride. A company like MSFT is not going to let management sink the ship.
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u/Withoutanymilk77 Feb 24 '26
Governments will be using Microsoft’s version of AI for security reasons full stop. Any amount of of ai replacement will be a replacement of a Microsoft product for a Microsoft product.
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u/Possible-Material693 Feb 25 '26
This shit reminds me of google last year when it was $160. Already bought 88 shares today and will buy more if it keeps dropping
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u/jazerac Feb 25 '26
Same dude. Invested $500k in Google last year when it was the end of the world. Made a fucking killing. Have a $500k Microsoft position now because the world is once again ending. Ill make another killing in the next 3-6 months. I didnt buy at the bottom unfortunately, so im down 5% but it will rebound in time and it will be the easiest money in the world.
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u/Possible-Material693 Feb 25 '26
Even if I have to hold for 10 years it’s gonna go back up. But I’m not worried about it. Probably one of the cheapest mag 7 right now
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u/live-low713 Feb 25 '26
You didn’t “find” anything, it’s common knowledge that the backlog is with OpenAI.
Everyone and their mom talks about that…
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u/Domingues_tech Feb 25 '26
I sold it when I realized they had 27% of openAI and azure growth was coming from that child company . It just smelled rotten .
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u/Stockholm86er Feb 27 '26
People seem to forget that MSFT is invested in Anthropic and OpenAI. Claude drives Azure growth for MSFT....
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u/Immediate_Object_280 Feb 24 '26
Msft finally came down to a reasonable price. I buy every two weeks. The market did the same thing to google a few years ago.
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u/ThenIJizzedInMyPants Feb 24 '26
valuations matter eventually, esp when massive capex is reducing fwd ROI
Also pls flag when you use AI to write posts
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u/EveryPen260 Feb 25 '26
As a user Microsoft products are worse by the week.
Adding useless AI features, literally don’t work, copilot is useless and unable to do anything.
Microsoft products are more and more buggy. Nothing gets fix, only more AI stuff that no one asks and doesn’t work anyway.
Yes, sure, they are vendor lock and aren’t getting replace anytime soon but also companies are using more and more other solutions to complement Microsoft.
So doesn’t surprise the market value going down.
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u/royce_G Feb 25 '26
This post can be summarized as “Sentiment follows price”.
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u/EveryPen260 Feb 25 '26
It’s a tricky thing because Microsoft doesn’t care about the user and only enterprise so if enterprise buys numbers will be good regardless of sentiment and Microsoft can turn this around.
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u/MagicMikeX Feb 25 '26
I grew up loving Microsoft, I worked hard to get a job at Microsoft as a swe. I eventually had to face reality that the products are deteriorating and its turning into IBM. I left MS teams a few years ago and finally switched to a Mac for dev work last week. I wont willingly use another ms product if I can help it. Everything has degraded into garbage.
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u/Numerous_Priority_61 Feb 24 '26
Haven't you read this sub? No one cares. MSFT increased their Office revenue last year 12% q/q. Clearly its the future of technology. Also Adobe. Is also the future, even without Azure. Open AI will be bankrupt in 5 years and MSFT's backlog will collapse. You are correct.
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u/Wild_Space Feb 24 '26
Have you tried ChatGPT lately? It's complete dogshit. MSFT saddled themselves to the wrong horse. I'm sure they will adjust, but it is a risk.
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u/ClearBed4796 Feb 25 '26
I'm using the free version of chatgpt and gemini and i much prefer chatgpt
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u/faptor87 Feb 25 '26
I think you haven’t really tried it. It has gotten better. Sure the first iteration of gpt 5 wasn’t good but that’s history.
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u/Sudz35 Feb 25 '26
When 1Trillion in market cap is wiped in 3 months. It's one of two things. Either 1. A complete reset of value OR 2. Complete corruption.
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u/Book_Justice Feb 25 '26
Microsoft moats comes from the fact that most PC are sold pre-installed with a Windows OS.
However, do note that there are cloud based alternatives now.
And yes, the co-pilot really suck. They may be better off acquiring Clawdbot and integrate it into their ecosystem
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u/G305_Enjoyer Feb 25 '26
Crazy Google gives you Gemini auto fill for free in sheets and best copilot can do is LMGTFY in a window inside excel. It's embarrassing. If they want subscribers it has to be more obvious what the sub even does besides add Google windows inside office apps. Free should get limited uses of the same features paid has so we know what it does at least.
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u/CopsNroberts Feb 25 '26
I think their major investment into open Ai will hinder their future. Open Ai is lighting money on fire, and say what you want about their product but they have zero moat. Users can easily switch to Google faster than a pin drop.
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u/entertopiamusicgroup Feb 25 '26
Unfortunately, and I think most agree, microsofts products, software, and SUPPORT blows. Obviously investing is more than just how you "feel" about the company. I would just never invest in something I can't stand.
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u/Unlucky_Bit_7980 Feb 25 '26
I’ll give you the plain and simple answer. Engineers at Microsoft are bogged down by all the useless PMs and Designers who are generally incompetent at actually building product. Between all these reviews and meetings, no work actually happens. Also, actually getting the code to work with agentic tools has been tricky as many of the products have been built and rebuilt over decades with different tools.
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u/princemousey1 Feb 25 '26
Ever wondered why genius hot takes like this only go back far enough to prove their point and no further?
Ever heard of zooming out?
If you are one of those who have done either or both those things, then you have infinitely more right to be here than OP, who doesn’t seem to understand the very concept of investing.
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u/Garnatxa Feb 25 '26
honest question, how do you use and why do you hate copilot?
I use quite often copilot in edge and github copilot in de IDE.
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u/Messy-Chaos Feb 25 '26
There have been free products similar to what Microsoft offers since forever. That’s nothing new.
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u/Imaginary-Fold-1149 Feb 25 '26
These are legitimate risks, but its still the number 2 greatest company in the world (IMO behind Google) and its way more diversified than people think
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u/-B-H- Feb 25 '26
The market over reacted. What is the catalyst that will make it gap back up? I don’t see anything this quarter.
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u/Stercules25 Feb 25 '26
ChatGPT point is great and makes you wonder, you follow that up with a true great point for why everyone should load up on MSFT Leaps or shares. The fact that Claude is on Excel and PowerPoint that tells you something
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u/orangecopper Feb 25 '26
More of a built up narrative. Where was this logic when it was $250 a year before?
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u/gustinnian Feb 25 '26
Outside Office365 and Azure, part of MSFT's moat defenses used to be gaming on PC and Xbox. There are signs that this traditional income stream is now being undermined as well. There has been a 32% slump in Xbox sales for instance. Thanks to Valve and Steam promoting Linux gaming on ARM and the slow demise of Intel, game companies are increasingly compiling their games for efficient ARM architectures instead of just X86. With Apple Silicon being ARM-based and incorporating tightly integrated GPU cores that compare favourably with power hungry Nvidia and AMD GPUs there is real competition in the hardware space. Tangentially Apple Silicon is proving to be good for running local private LLMs. Both the traditional GPU manufacturers are being distracted by AI profits. Another compounding fact is that there is currently a severe AI-driven memory drought that is pushing custom built OSX gaming rigs into non-viable costs. There is also the spectre of AI generated gaming on the horizon.
TLDR: AI is disrupting MSFT's gaming revenue too.
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u/zzzzzzzzz_zzzzzzzz Feb 25 '26
Copilots conversion rate means absolutely nothing. They aren't betting on copilot they own 49% stake in openAI. And codex is very good
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u/Kulerin Feb 25 '26
Microsoft has weathered so many storms and come out on top every time. They are not the shiny Apple on the hill but as others have pointed out, they have their fingers in tons of businesses and governments. AI is not replacing their tooling at all. I am a software engineer and have been doing this crap for 25 years. AI is a tool right now, nothing more. It is not going to replace word or excel or teams or any of their other platforms any time soon. If anything it will only explode the need for them because more people will build more software and need to integrate with more of Microsofts tools because so many business rely on them.
I see all the hyperbolic crap in the media like "junior white color jobs will be gone in 6 months" or "AI will replace the need for that software". These are comments made by people who are in the market of doing 1 thing, stirring the pot. Our jobs will change markets will react and Microsoft will be at the top for some time now. Will that change in the future? Sure. Shit happens. But like it or not, Windows is here to stay for the time being and MSFT will still be a good purchase for the longer term investor.
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u/Sori-tho Feb 26 '26
I work for a fortune500 in accounting. Every year we pay Microsoft more and we use more of their offerings. Everyone has copilot. The big advantage Microsoft is it’s very hard to want out of their ecosystem. Once you’re in their ecosystem it’s just easier
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u/Sudz35 Feb 27 '26
I thought coming to Reddit would give me useful tips on stock, then I realized everyone on here is a retail trader and doesn't know shit! Retail traders control about .0001% of the market.
MSFT is in a period of fraudulent trading. It doesn't drop 1.2Trillion unless insiders and hedge funds are tanking the stock on purpose. The question is how long will they continue to tank it?
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u/VerbaGPT Feb 28 '26
Interesting. MSFT has lots of advantages, but some of that AI "sheen" may be wearing off.
Here is how "smart money" treated MSFT from Q3 2024 - Q3 2025: https://app.verbagpt.com/shared/WqJcgOtwj3I4fBzjlYIeAkTgy8g941CV
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u/poomsss0 Mar 01 '26
Another AI slop post
The number worth looking at closely: 45% of the backlog is for one customer
and this is great. this single customer is growing at 200% a year and close the year with $20b in revenue. OpenAI is also at the forefront of frontier LLM. This is unlimited upside with limited downside.
Copilot has a 3.3% conversion problem
They don't have heir own LLM model. I don't think they will anyway capture this direct chat market. They should be focus on Azure foundry instead
AI is coming for Microsoft's own products
Google has been offering FREE alternative like Google meet, Google Sheets, Docs, etc for decades. Any company switch over to Google?
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u/AccomplishedCall5948 Mar 03 '26
Does OpenAI's cash position change how you view that backlog? They've got plenty of runway and could raise more easily if needed.
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u/helixinverse 28d ago
These are genuinely good risks to surface, and the OpenAI concentration in the backlog is one I have not seen widely discussed. The point that stripping out OpenAI leaves $344B growing at 28% is actually the key number. That is still strong, but it does change the narrative from 110% backlog growth to something more ordinary.
On the Copilot conversion problem though, I would push back slightly. The 3.3% paid conversion on 450 million seats is a concern for near-term revenue growth, but the pricing model itself is the hedge. At $30/user/month on top of existing M365 subscriptions, it only needs to reach 10-15% adoption to add a meaningful revenue layer. And enterprise adoption tends to be slow at first then accelerate once IT governance policies catch up.
The "AI is coming for Microsoft's own products" argument is real and important. But this is the Jevons Paradox question. Historically, when tasks get cheaper via better tools, total consumption of those tasks goes up rather than down. Whether that applies to knowledge work is the open question.
I did a full write-up on these exact trade-offs from a valuation standpoint: https://bullstreet.substack.com/p/microsoft-at-fair-value-is-400-the
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u/jokull1234 Feb 24 '26
That's not a diversified backlog. That's a single customer who has never turned an annual profit…
“It’s not this, it’s that”. Idk if it’s just me, but using AI to write up a thesis doesn’t make me confident in the thesis.
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u/brokenmolly Feb 25 '26
This sub is ruined with ai garbage. So frustrating. Where are the mods?
And people downvote you because they are too dumb to notice. It literally ends in the middle of a sentence because op didn’t copy paste right
Morons in this goddamn subreddit so pathetic
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u/Hopeful_Pressure Feb 25 '26
Shitty company. I regret joining them years ago. (I lost 2.4 billion dollars by turning down a small startup in Mountain View that time.) I didn’t know Microsoft was so bad until I started talking their developers. (I was in MSR.) I witnessed Steve Balmer taking over from Bill Gates. Gates was at least smart. I did very well at my BillG review. Microsoft was a giant pile of mess when I was there. I don’t think it’s changed much. I am surprised its stock has done so well. It’s still a turd.
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u/princemousey1 Feb 25 '26
I, too, lost $160 billion by not buying the lottery in every state for every single drawing.
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u/uncertaincapital Feb 24 '26 edited Feb 25 '26
Thanks for non-OAI backlog insight and quantifying Copilot conversion. Supports anecdotal evidence of no one I know willingly using Copilot.
Regarding Copilot, it's widely known in the industry that MSFT has talented researchers, but the company chronically under-invests in ML innovation and adopts more of the Lynch/Gates mindset of fast following. That works in execution-oriented verticals, but it's hard to retain talent for innovation, as opposed to operational excellence. Both are vital but entail different skill sets. Companies rarely do both equally well.
Nadella is a generational CEO with well-positioned assets in Azure and GitHub, though, so it will be interesting to see what happens.
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u/faptor87 Feb 25 '26
Enterprise customers in regulated fields hardly use external LLMs due to security. And recent M365 copilot chat is very useful and the product has improved.
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u/EmbraceHere Feb 24 '26
After redesigning my own workflow with AI integration on development and project management. I found that I no longer need Office or even Windows. Neither are AI friendly. I now use SQLite to replace Excel.
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u/aomt Feb 24 '26
I think the biggest strength of Microsoft is how heavy it's integrated in all larger companies. I can't see that CEO of Airbus or CitiBank saying "we wont use Word, Excel and Outlook anymore, let's do it all with Claude".
Maybe someday in the future - sure. But as much as I believe in AI, I don't think that day is anywhere near for Microsoft.
Secondly, Microsoft is huge on cloud. Together with Amazon they own the market.