Microsoft Produces Strong FCF As Expected - Shorting OTM Puts is an Attractive Play

Core Insights - Microsoft Corp (MSFT) reported a 33% increase in free cash flow (FCF) for the quarter ending September 30, with a strong FCF margin of 33.3% despite significant AI capital expenditures, suggesting a potential market cap increase to $5 trillion over the next year, representing a 33% rise [1][3][4] Financial Performance - For fiscal Q1 2026, Microsoft achieved a revenue of $77.7 billion, marking an 18% year-over-year increase, while FCF rose by 33.3% to $25.663 billion [3][4] - The FCF margin for Q1 2026 was reported at 33.04%, an increase from 29.36% year-over-year, although slightly lower than the previous quarter's margin of 33.45% [4] Capital Expenditures - Microsoft’s capital expenditures increased by 30% over the past year, primarily focused on AI-related projects and cloud computing capacity [4] Free Cash Flow Analysis - Over the trailing 12 months, Microsoft generated 26.55% of its revenue as free cash flow, up from 25.42% in the previous quarter [5] - Analysts forecast revenue for the year ending June 30, 2026, to be $326.70 billion, with estimates for next twelve months (NTM) revenue calculated at approximately $338.745 billion [6][7]