Microsoft's Strong Fiscal Year Met with Skepticism

Microsoft's fiscal year 2026 was one for the record books. The company's revenue rose 18% to $331.8 billion, and net income grew a whopping 31% to $133.7 billion.

The market, however, didn't exactly follow suit. Microsoft's market capitalization stands at around $3.59 trillion as of this writing, which is about 4.5% lower than it was last year.

This discrepancy can be attributed to the changing price investors are willing to pay for each dollar of earnings. A year ago, they paid about 37 times earnings, but today that number has dropped to around 27 times.

The company's business performance is strong, with revenue growth at 18% for the full year and 43% in the fourth quarter for Azure and other cloud services. Operating income rose 21% to $155.2 billion, outpacing revenue growth.

But what gives? The market seems to be concerned about Microsoft's cash flow position, particularly its capital expenditures, which skyrocketed 80% to $115.9 billion in fiscal 2026. This has raised questions about the sustainability of the company's business model and its ability to generate returns on investment.

The contrast with Apple is striking. Apple's market cap rose about a third over the past year, despite spending significantly less on capital expenditures than Microsoft. Apple now trades at around 35 times earnings, while Microsoft is valued at 27 times.