MSFT: Unpacking the Stock Price & Earnings Outlook

Microsoft's AI Spending: Genius Move or Future Albatross?

Alright, let's talk about Microsoft (MSFT). The stock's been a rollercoaster, and everyone's got an opinion. But what does the data actually say about their aggressive AI investments?

The Alphabet Shift: A Symptom, Not the Disease

First, the headline: Alphabet (GOOGL) briefly overtook Microsoft in market cap. A symbolic victory, sure, but let's not overreact. The real story is the why. Alphabet's 59% stock increase this year is impressive, fueled by solid cloud growth (34% in Q3 2025) and the early buzz around Gemini 3. Berkshire Hathaway's $4.9 billion stake certainly didn't hurt either. Alphabet (GOOGL) Overtakes Microsoft (MSFT) as Market Value Climbs to $3.58 Trillion

Microsoft, on the other hand, has slipped from its peak, now trading near $478 after nearing $555. The culprit? "Some investors moved to value stocks," the reports say. Maybe. But I think it's more about the elephant in the room: AI spending.

Microsoft's Azure grew 37%, which is nothing to sneeze at. But the company's planning a staggering $35 billion in AI-related capital expenditure per quarter. Thirty-five billion. That's real money, even for a company the size of Microsoft. The question isn’t whether they can spend it, but whether they should.

Are they betting too big? Wall Street clearly has some doubts.

Fara-7B: A Glimmer of Hope (or a Distraction?)

Now, let's pivot to something less discussed but potentially more impactful: Fara-7B. This is Microsoft's new "agentic SLM" (small language model) designed for computer use. Basically, it's an AI that can operate your computer for you – filling out forms, searching for information, booking travel. The promise is huge.

What’s interesting is that Fara-7B needs only 7 billion parameters, achieving state-of-the-art performance within its size class and is competitive with larger, more resource-intensive agentic systems. The advantage is that Fara-7B’s small size now makes it possible to run CUA models directly on devices. This results in reduced latency and improved privacy, as user data remains local.

Think of it as a specialized tool, like a high-end Swiss Army knife, compared to a general-purpose AI like GPT-4, which is more like a whole workshop.

The claim is that Fara-7B outperforms even GPT-4 on certain web tasks (WebTailBench success rate of 38.4% vs. GPT-4's 30%). But here's where my skepticism kicks in. How exactly are they measuring "success"? The source material states that WebTailBench success is computed using the same Task Verification pipeline that filtered their training data. Isn't that a bit like grading your own homework?

(And this is the part of the report that I find genuinely puzzling – why release an experimental model with potentially biased evaluation metrics?)

I mean, don't get me wrong, the potential is there. Fara-7B operates by visually perceiving a webpage and takes actions like scrolling, typing, and clicking on directly predicted coordinates. It does not rely on separate models to parse the screen, nor on any additional information like accessibility trees, and thus uses the same modalities as humans to interact with the computer. But we need independent verification before we crown it the next big thing.

The Rate Cut Wildcard

Finally, let's not forget the macroeconomic context. Federal Reserve Governor Christopher Waller is calling for a December rate cut. Lower rates tend to make long-term growth names more attractive, prompting investors to rotate back into large-cap tech. This explains Monday's MSFT price bump of 0.40% (closing at $474, to be exact). What's Going On With Microsoft Stock Monday? - Microsoft (NASDAQ:MSFT)

But here's the thing: relying on interest rate cuts to prop up your stock price isn't a sustainable strategy. It's like treating a symptom instead of the disease. Microsoft needs to prove that its AI investments are paying off, regardless of what the Fed does.

The Jury's Still Out