This article first appeared on GuruFocus.
Microsoft (NASDAQ:MSFT), the software and cloud giant sitting at the center of the AI buildout, rose approximately 1.3% Thursday morning as Pershing Square laid out why it remains bullish. Forget the fact that this is not a new position. The real story is what Bill Ackman (Trades, Portfolio)'s fund sees ahead. Microsoft is spending heavily to build AI capacity today, and Pershing believes Azure, Microsoft 365 and Copilot can turn those billions into a much bigger earnings machine tomorrow.
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That bet comes down to one question: is Microsoft spending too much on AI, or is it building capacity before demand explodes? Pershing is firmly in the second camp. Microsoft 365 is already buried deep inside the daily workflow of corporate America, giving Copilot a ready-made distribution machine as AI agents become more useful. Azure brings the other half of the equation. Computing capacity remains tight, AI workloads keep getting heavier, and Microsoft is building the infrastructure needed to capture that demand. If usage keeps climbing, today's giant capital-expenditure bill could become tomorrow's competitive advantage.
Then there is the valuation. Pershing estimates Microsoft at roughly 19 times forward earnings while projecting earnings growth of around 19% annually over the next three to five years. Those are Pershing's numbersnot Microsoft guidance or Wall Street consensusbut the GF Value picture adds another layer.
Microsoft closed at $498.66 on August 13 versus a GF Value estimate of $576.07, leaving the shares 13.44% below GF Value. That is a meaningful gap for one of the biggest AI winners on the planet. The bull case is simple now: Azure keeps humming, Copilot starts making serious money, and all that expensive AI infrastructure gets filled. If those three pieces click, Microsoft's current spending spree may look a lot less scaryand the stock may not stay below GF Value for long.