MSFT is attractive due to healthy FCF, diversified AI demand reducing concentration risk, and undervaluation relative to historical multiples.

What's interesting is we can see Microsoft came in at number one. Now, Microsoft over the last five years has grown earnings at a high rate with a EPS CAGR of above 18%. And what you'll notice is they're trading quite a bit below their four-year average PE multiple.

So, if we look at Microsoft here on Forecaster, there's a couple of different things worth pointing out. If we look at sales over the last five years, we can see it's grown substantially.

And along with it, the share price has climbed higher. But what you will notice is if you look in the last year, they're down by 3%, but the share price has been incredibly choppy, particularly from around April to really around current day.

The stock went from trading as high as $541 a share all the way down to 356, climbed back up to 460, and then quickly fell all the way back down to 352. And then after the recent earnings report, peaked at about $506 a share. That is a lot of volatility.

But what we have to remember is these super investor purchases were made during Q2. So what does that mean? Well, it means these investor purchases were bought in this range right here.

And so all we don't know exact purchase prices, it's clear a lot of super investors were buying the dip on Microsoft.

Now, if we look at the fundamentals for Microsoft, you'll see things like revenue and earnings really haven't been impacted. In fact, the revenue growth is pretty beautiful. They're still growing revenues at a high rate.

In fact, even if we look at earnings per share, gross profit ratios, things still look incredibly strong. Basic earnings per share has grown substantially in the last few years.

So, what's the issue? Well, the obvious issue is the increase in CapEx spending. And this is something that most big tech stocks are going through right now as they compete in the expensive AI race.

If we scroll down here to the bottom, we can see what CapEx spending looks like. It's ramped up significantly, particularly in just the last couple of years. It's essentially doubled.

However, what a lot of people seem to be missing, maybe not super investors as it is the most frequently bought stock, is the fact that Microsoft from a CapEx perspective is in a much healthier position than most companies.

How do we know this? Well, for one, they're one of the few companies, particularly hyperscaler stocks, that aren't aggressively issuing debt right now.

However, that's not the case for Microsoft. In fact, Microsoft is still free cash flow positive, and they're projected to continue to stay that way, even through this CapEx cycle.

And just as important, Microsoft already has substantial contracted demand supporting their increased CapEx spending. This is what the market wants to see. Their commercial remaining performance obligations increased 84% to $678 billion creating one of the largest backlogs of revenue in all big tech.

This is revenue that has not yet been recognized.

Now, this is great, but they've had a massive backlog for a while now. So, what changed? Why did we see such choppiness in their share price particularly from around April of 2025 to now?

Well, investors previously had an issue with the fact that the despite Microsoft had a massive backlog, most of that backlog was tied to OpenAI which essentially created customer concentration risk.

But, now Microsoft's AI growth has become significantly more diversified. Nearly 90% of its full-year cloud revenue came from customers outside frontier model companies such as OpenAI.

So, they've essentially alleviated themselves from this customer concentration risk. This is a big deal for Microsoft.

Now, what's interesting is along with this, if we jump over to the political tab, we can see it really wasn't just super investors buying Microsoft in Q2. It saw quite a bit more congressional buying in Q2 than it had really over the last year.

Super investors absolutely love Microsoft, Meta, and Visa at these prices still. Microsoft and Meta are still trading well below the historic valuation multiples.

But these are for the most part historically capital light businesses, not so much now with the CapEx spending from Microsoft and Meta, but companies that generate high return on invested capital and have incredible gross profit margins.