Microsoft (MSFT US) Buy: FCF may bottom out in 2027

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Microsoft (MSFT US) Buy: FCF may bottom out in 2027

). Asset turnover has declined from the 42-43%

range in FY22 as GPU-focused cloud offerings have become a larger portion of the 600.00

mix. As Microsoft’s GPU focused business continues to outgrow the rest of its 460.00

portfolio, we expect asset turnover to dip to 33-34% in the long run (vs 26-29% for 320.00

pure GPU focused clouds). We estimate that only c54% of gross assets deployed by 07/25 01/26 07/26

Target price: 567.00 High: 542.07 Low: 352.83 Current: 383.34

Microsoft are IT equipment, suggesting many of the long-life assets deployed by

Microsoft may be underutilized. Hypothetically, if Microsoft’s IT assets were 65% of Source: LSEG IBES, HSBC estimates

total assets, as is the case with CoreWeave, Microsoft’s revenue could be 20%

Stephen Bersey

higher from the same dollar denominated asset base. Thus, the company may be Head of US Technology Research

able to disproportionately increase its revenue generating IT component, which may HSBC Securities (USA) Inc.

stephen.bersey@us.hsbc.com

help improve its asset turnover, partially mitigating the adverse mix effect. +1 212 525 4153

FCF should bottom out in FY27e: We expect FCF to bottom at USD-5bn before Abhishek Shukla*, CFA

Senior Analyst, Technology

rising to USD132bn in FY30e. Stabilization of capex, a rising share of IT equipment in HSBC Bank Middle East Limited, DIFC

abhishek2.shukla@hsbc.com

the asset base, and reduction in construction WIP are likely to help improve FCF. +971 4 5093343

Leaving aside the interlude of FY25-27e that was driven by a sudden AI-driven capex

Sameer Lam*

surge, a FY23-30 at scale FCF CAGR of 13.1% is attractive, in our opinion. Global Software Analyst

HSBC Bank plc