Microsoft: what’s the real value of AI? Part I: Extending the revenue growth opportunity

We initiated coverage of Microsoft earlier this month, with a positive view on both the ability of the company to continue to grow profitably existing franchises (mostly Azure, Office) in low teens, and AI gathering momentum, although contributing only a quarter of revenue growth by 2027, and with an associated spike in capital expenditures.
The main question we receive from investors is about the actual value of the latter. If AI is a small contributor to growth and depresses free-cash-flow with gigantic investment, is it creating value for Microsoft? It is one of these simple questions, that require a complex, or at least rich answer.
Software-only analysts are not well positioned to assess the value of a growth opportunity that requires heavy investments in tangible assets. This is where we can help.
We did the work and share it in three parts. The first one, published today, focuses on the growth opportunity in the long run. The second one will address the key question of cash returns. The third one will answer the ultimate question: How to value Microsoft today? FCF yield or P/E multiple?