From Nasdaq:

Microsoft has surpassed Apple to become the world’s most valuable company, with a market cap of $3.125 trillion. Despite generating half the free cash flow of energy companies, Microsoft’s valuation is nearly double theirs, prompting analysts to call this statistic “puzzling.” The company’s growth in free cash flow flattened in 2022 but has been climbing steadily since the first quarter of 2023.

Energy companies, operating in a capital-intensive industry, have seen slowing free cash flow generation, but with the resurgence in oil prices, they are expected to increase spending, reducing free cash flow. On the other hand, analysts believe that Microsoft’s embrace of artificial intelligence will propel its stock higher over the next three to five years. Investors are willing to accord a premium valuation to Microsoft shares due to its integration of OpenAI’s language generation and its position at the forefront of the AI revolution.

Despite debates around Microsoft’s valuation, analysts expect the AI bubble to last for the next three to five years, with the stock continuing to hit higher. The integration of OpenAI’s generative language into its business areas is expected to keep Microsoft at the forefront of the AI revolution. This has led investors to ascribe a premium valuation to the company’s shares, given its potential for fat future profits and massive capital appreciation.



Read more: ‘Puzzling,’ Says Analyst As Microsoft’s Valuation Double That Of Energy Companies Despite Generating Half Their Cash Flow