Microsoft's Spent Big, But at Least It Can Pay Its Bills

Microsoft and Tesla have been two of the worst-performing stocks among the 'Magnificent Seven' for most of this year. However, since their latest earnings reports, they've diverged in terms of performance, with Microsoft up 6.5% year to date (YTD) and Tesla down 24% YTD.

Both companies have been criticized for their high capital expenditures (capex), but one is much more justified than the other. While both companies have invested heavily, Microsoft spent $41 billion in its recent quarter, up 70% year over year, compared to Tesla's $5.8 billion, a 142% increase.

Microsoft's free cash flow was still $19.6 billion even after spending $41 billion this past quarter, whereas Tesla's free cash flow came in negative, burning through $1.1 billion. The article argues that Microsoft's high capex is easier to justify due to its strong financial position and the fact that it has more leeway to absorb costs without jeopardizing its financial health.

The issue with both companies' spending isn't the amount itself but rather the lack of immediate returns on investment. Investors are concerned that Tesla's spending on long-term projects, such as its Optimum robots and robotaxi network, will not yield meaningful revenue or profits in the near future.