Microsoft earned 31% more and lost about $169bn of market value: the multiple did the work

Work backwards from the 31%. The prior year's net income was about $102 billion ^[1][13], and at about 37 times earnings that put the market capitalisation near $3.76 trillion ^[5][6][14]. The distance between that and today's figure is roughly $169 billion of value gone while the earnings base grew by a third ^[5][15]. The multiple did all of it and a little more: down about 27%, slightly steeper than the profit growth it was applied to ^[6][16].

The specific thing being repriced shows up in cash conversion. Reported earnings turned into about 50 cents of free cash flow per dollar in fiscal 2026, against roughly 70 cents the year before ^{[1][9][13][17]}. Chief financial officer Amy Hood's calendar 2026 plan of about $175 billion in capital expenditure and finance leases runs some $20 billion above the $155.2 billion of operating income the entire company produced last fiscal year, and she has signalled further growth in fiscal 2027 ^[8][2][18]. Almost all of that spending returns as depreciation against future earnings, and whether it earns its keep depends on AI computing demand being large enough in a few years to fill the capacity being built now ^[3].

There is also a quality question inside the 31%. Gains on the OpenAI stake added about $5 billion to fiscal 2026 net income, and the fourth quarter carried a $3.2 billion gain on the Anthropic holding ^[10]. Take both out and net income is nearer $125.5 billion, which puts the shares closer to 29 times earnings than 27 ^[19]. The same counterparty appears on the demand side: the commercial backlog reached $678 billion, up 84% year over year ^[11], and Microsoft said in January that about 45% of the then-current figure came from OpenAI alone ^[4]. The Motley Fool reports no updated share against the June number, so the largest visible block of contracted demand is being read off a stale disclosure.

The Apple comparison is sharper than the two multiples suggest. At about 35 times earnings and $4.51 trillion, Apple's implied trailing profit is roughly $129 billion ^[12][20], marginally below what Microsoft earned, and yet it carries about $920 billion more market value ^[20]. Investors are not paying that premium for profit. They are paying it for profit that arrives without a depreciation schedule attached.

Which leaves the two explanations on offer sitting awkwardly beside each other. The Motley Fool attributes part of the discount to a broad derating of software on generative AI disruption fears ^[21], and part to capital intensity ^[3]. Those point in opposite directions: if the threat is disruption, heavy compute spending is the defence; if the problem is the spending, the defence is the complaint.