Every Mag 7 has something you can find wrong with it. For Tesla, it’s probably the astronomical valuation. For Google, it could be the “10 blue links”. Amazon… well, Amazon has always been considered toast, but today it’s the $200 billion capex they’re planning to spend in 2026. And with Microsoft, it’s that 45% of their cloud backlog is OpenAI. Oh no! One of the fastest growing private companies, maybe ever, is out customer! -100 points to Microsoft.

Honestly, it’s ridiculous. Capex is the engine that drives future growth. And every company, besides Apple (who’s been asleep at the wheel for over a decade), is telling you that the growth prospects are too promising to underinvest now. These are companies that are going to put up operating income that trounces this cost within 2 years.

And that’s not even the half of it. What Mr. Market can’t seem to comprehend is that big corporations like Amazon are able to pull forwards capex depreciation costs. In 2025, Amazon made $90 Billion in profit and paid $1.2 Billion in federal taxes, down 87% from the year before. Why? Accelerated depreciation on their $131 Billion in capital expenditure.

What if, and hold on for a minute, what if, Amazon is spending $200 Billion in capex since they can pull forward the depreciation in 2026, letting them reinvest their profits into future cash flows? What if Amazon, and other magnificent 7 companies, are allocating their capital to increase the growth rate of their future cash flows?

Despite this, analysts are rewarding companies like Amazon with, their lowest valuation??

It’s like analysts all of a sudden realized that future growth doesn’t matter. Or their models just simply couldn’t adapt to increased front-loaded investments for increased future growth. Either way, capex numbers have spooked the market, again. Even though capex increased around 50% in 2025, while the companies have translated this directly into growth.

So what’s it about Microsoft?

Well, as you’ve probably seen, software businesses, specifically SAAS companies, have been dramatically sold off. Microsoft is no exception to that. Having been caught up in the SAAS trade, MSFT 0.00%↑ is down 26% from its high of $542. Today, the stock trades at around $400. That’s a market cap of below $3 Trillion.

At this point, Microsoft trades well below it’s 200 day EMA, but just above it’s 200 weekly moving average. As Charlie Munger says, if all you ever did was buy high-quality stocks on the 200-week moving average, you would beat the S&P 500 by a large margin over time. MSFT 0.00%↑ isn’t quite there, but it may be as close as you’re gonna get like in April 2025.

This is a sub $3 Trillion dollar company that puts up $300 billion in annual revenue, $120 billion net income in the TTM. What that translates to is almost 70% gross margins, with an operating margin around 47% TTM. That’s up from an operating margin of 29% in 2016. Insanity.

For context, Microsoft’s capex guidance is expected to be around $105 billion for FY 2026. They could fully afford that in net income, with extra to spare. And that doesn’t account for accelerated depreciation.

But don’t be fooled. This isn’t some one-time expenditure that just might pay off. Management is telling you their commercial remaining performance obligation increased 110% to $625 billion. They have to scale capex to meet this demand. If anything, this is conservative capex. They’re only spending 1/6 of their RPUs. Even if OpenAI’s 45% commitment disappeared overnight, Microsoft would still have $344 billion in RPUs. Seems like that warrants $105 billion in capex to satisfy those RPUs and win some more customers. To Mr. Market, that’s apparently delusional.

At the end of the day, this isn’t the Nifty 50. This is the Mag 7. And Microsoft trades at a forward earnings multiple of less than 23. Let’s say that again, Microsoft has grown operating margin to 47%, with top-line growing at 15%, bottom line at 17%, and ROIC at 29%.

It’s easy to get scared when people scream “market crash” after the S&P 500 hits all time highs. What’s harder is looking at the numbers. And the numbers are saying, this cycle is not stopping, this growth opportunity is unprecedented, and every management team of the top companies is allocating capital. They’re not spending. They’re investing. Capital is flowing to where it’s best treated for future growth, and that’s toward this data center buildout.

Occasionally it pays to be contrarian, but in this case, the crowd makes money.