Microsoft (MSFT) had the clean quarter of the week. Azure, its cloud, grew 48%. Revenue rose 19% to $92.28 billion, ahead of the $90.62 billion analysts expected. Profit jumped to $36.63 billion, or $4.92 a share, from $27.75 billion a year earlier. The stock rose about 3% after hours Wednesday. Then on Thursday, Microsoft sold bonds for the first time since 2017.
The bond sale is $25 billion in 10 parts, with maturities from two to 40 years. Microsoft carries triple-A ratings, the highest there are. Alphabet, Amazon and Meta have been selling jumbo bonds for about a year to fund AI. Microsoft had been the holdout. Its 10-year notes priced 0.65 percentage point above Treasurys, Sam Goldfarb reported for the Journal. That gap is called the spread. Alphabet's 2036 bonds traded around 0.8 point above. The 10-year Treasury closed Thursday at 4.988%. Add the spread and the new 10-year notes yield roughly 5.6%, by our arithmetic. Investors expect Meta to come next.
The beat came with a few footnotes. The new Agent and Infra segment, which holds Azure and Microsoft 365, brought in $76.8 billion. Chief executive Satya Nadella said demand led the company to add 24 new data centers across five continents. Microsoft's capital-spending plan is lower than it was, about $175 billion this year from roughly $190 billion. That cut was announced last quarter, and it came with an accounting change. Microsoft now spreads the cost of its data centers over 25 years instead of 15. That lowers the yearly expense on paper without changing the buildings.
Buyouts in a boom
Even after a quarter this strong, Microsoft is offering buyouts to about 60,000 of its 223,000 employees, Elias Schisgal and Isabella Simonetti reported. An April program offered buyouts to about 8,600 people, and more than 30% took them. The company expects a far smaller share to accept this round. The stock slipped 0.2% Thursday while Alphabet fell 12.64%, which tells you how the market graded the two.
Our read
This is a Fixed Income story, IN02. Even the richest borrower is now borrowing for AI. When a triple-A company that hadn't sold a bond in nine years raises $25 billion, the build-out has entered its debt phase. Microsoft is held at weight in 29 of our model books. Nothing was added. We like the business. We also notice that more of the AI bill is now paid with borrowed money, and that's a change worth writing down.
Here's the connection to your own plan. If you own a bond fund in your 401(k), look up its duration this week. It's on the fund's fact sheet. A duration of 6 means the fund's price would fall about 6% if rates rose one percentage point. Funds like that may hold big tech bonds, and Microsoft's new ones run as long as 40 years. A triple-A name tells you the company is very likely to pay you back. It says nothing about what rising rates do to a long bond. A Bloomberg index of long Treasurys lost 5.266% over the past 52 weeks, interest included, by the Journal's table. Our model books keep safe money in Treasury bills (SGOV, 49 books) and floating-rate paper (USFR, 14). Check that duration number before the next rate move, the way you'd check the forecast before a long drive.