SouthernValue

Infinitely curious. “Spend each day trying to be a little wiser than you were when you woke up.” - Charlie Munger

Nothing here is investment advice

[SouthernValue @SouthernValue95]

$MSFT is still down on the year, and <20x my estimate of CY27 EPS. With Azure growing mid-high 40s, and M365 commercial ($100B business) soon to accelerate to the 20s, I think multiple expansion is warranted. The vast majority of MSFT revenue and profits are clearly benefitting from AI and the business will see earnings compound in the 25%+ range.

Why I’m so confident in >20% growth for M365 Comm’l in several quarters:

- Copilot adoption alone at current pace of +10M/seat per quarter, at a 25% discount to $30 list, will do it (I est. copilot is contributing ~4pt of growth today going to ~10pt NTM).

- Copilot seats additions are accelerating, and the math below assumes they stabilize at +10M/qtr.

- ARPU upside (1): MSFT new E7 SKU launched in May is a $100 SKU vs. a modeled standalone Copilot ARPU of +$30 (discounted 25%).

- ARPU upside (2): MSFT turned on consumption pricing for Copilot in July, some users will eat into consumption tier driving ARPU >$30.

- MSFT recently launched premium consumption add-on products, such as Project Perception, an autonomous cyber agent that hunts for threats and vulnerabilities. Security is the hottest spend category right now and I wouldn’t be surprised if Perception was a hit.

- Lastly and possibly most significantly, MSFT just took a series of price increases on M365 commercial, effective 7/1. It’s first price incr. since 2022. So core growth ex Copilot should accelerate.

[SouthernValue @SouthernValue95]

Despite a +16% move today, the market may still be under-reacting to $MSFTs results last night (still down on yr).

Azure growing +43% and guiding to +45% grabbed the headlines, but MSFT was in its worst performance stretch since the GFC, and lowest valuation in a decade, because the world viewed its flagship Office franchise as an AI loser.

That view is now demonstrated to be wrong, as Office showed accelerating growth, and Mgmt. guided to continued acceleration throughout FY27 (a strong signal from a conservative mgmt team).

I believe MSFT's ~$100B Commercial Office segment can accelerate from mid-teens growth today to >20% growth rates over the next several quarters, driven by current pace of Copilot adoption and a reasonable assumption around E7 agentic orchestration SKU penetration. Paired w/ mid-40s growth in Azure, MSFT sets up well to drive accelerating overall topline and earnings growth over the next couple years.

See below where, adjusted for Fx and rev rec, MSFT Commercial Office is already showing clear acceleration, from 14% growth to 16% growth in the last year. If you add the typical beat margin to mgmt's guide, Office will accelerate to +17% growth in 1Q and then further through FY27 (a strong indication from a conservative team).

In the the thread below I'll show how continued execution of Copilot at 4Q levels can lift the segment to >20% growth.

[SouthernValue @SouthernValue95]

https://t.co/ooH8gx6uIU

[SouthernValue @SouthernValue95]

In all seriousness, I do not envy the board members at NVDA right now. They have a difficult decision to make. NVDA is a strategically important company to this country and the person running it matters. I suspect there is a deep bench of talent at NVDA, but Jensen is one of a kind.

A brazen lack of ethics in his work life is obviously disappointing (what he does in his personal life is his own business but both of these incidents cross lines for professional ethics and in the first instance potentially nat security concerns).

But more importantly if Jensen is to stay CEO, it is imperative the board can be confident he never did something with a profit motive that was not in Americas best interest or outside of legal boundaries (not just within Jensens interpretation of Americas best interests, which happen to align w/ his profit motives).

[SouthernValue @SouthernValue95]

The hero that Americas most important company needs

[SouthernValue @SouthernValue95]

In all seriousness, I do not envy the board members at NVDA right now. They have a difficult decision to make. NVDA is a strategically important company to this country and the person running it matters. I suspect there is a deep bench of talent at NVDA, but Jensen is one of a kind.

A brazen lack of ethics in his work life is obviously disappointing (what he does in his personal life is his own business but both of these incidents cross lines for professional ethics and in the first instance potentially nat security concerns).

But more importantly if Jensen is to stay CEO, it is imperative the board can be confident he never did something with a profit motive that was not in Americas best interest or outside of legal boundaries (not just within Jensens interpretation of Americas best interests, which happen to align w/ his profit motives).

[SouthernValue @SouthernValue95]

As I was saying

[SouthernValue @SouthernValue95]

I don’t understand why so many are rushing to defend Jensen. The most powerful man in the business world running the most important company is sleeping with the enemy. It’s horrible and puts his entire character into question.

[SouthernValue @SouthernValue95]

@Sunrise202086 Realistically I suspect if Jensen is replaced it will be an insider.

[SouthernValue @SouthernValue95]

@PythiaR What if the customer is also a Chinese smuggler spy

[SouthernValue @SouthernValue95]

Fascinating - $GOOG TPU has the best architecture for AI compute, and “there aren’t enough TPUs,”

$AVGO $ANT

“Today I would argue that probably the best architecture is the Google TPU architecture, because it is literally thought of as a single system. And I think an NVIDIA-style architecture is migrating in the direction of where the TPU architecture is, but it still has a few pieces that you can kind of swap out. And then you have everybody else — like, you know, I'm going to take a Cerebras chip and throw an Arista switch on top of it, and all that good stuff. At least in today's world, those systems have inefficiencies because they're not constructed as a system — they're more of a patchwork.

I think the industry will evolve, but today, people that can think of the whole thing as a single system and optimize the architecture through that have a competitive advantage.

If you look at how Google does this, with these toroidal pass-through optical MEMS switches — it's literally like the whole data center is the minimum unit. But my sense is that's where NVIDIA wants to go also. Actually, the two dominant providers are all going to that systems approach, versus — I mean, even the smaller startups are heading that direction.

Right now Jensen's king of the hill, incredibly dominant, right? Google TPU very successful, currently mostly sold by Google — it's expected to change. But not enough TPUs.”

[Mike Volpi @mavolpi]

Super fund to chat with @RaghuRaghuram &amp;
@appenz ... re-living the experiences from the Cisco days as well as exploring the AI ecosystem today.

[SouthernValue @SouthernValue95]

@tomkazansky13 TPU
Trainium
AMD GPU
All becoming more realistic substitutes

shortage won’t persist forever

[SouthernValue @SouthernValue95]

Anthropic telling sellside they don’t intend to keep high cost $SPCX compute beyond mid year

[Jukan @jukan05]

Interesting remarks Anthropic made in a meeting with the sell side:

- Anthropic has the stability and the better talent that open source lacks.

- The AI market is winner take all. As long as we execute properly, we will take all of it.

- The contract with SpaceX will not be extended beyond the middle of next year.

- Developing Opus 5.5 cost more than $10 billion.

[SouthernValue @SouthernValue95]

@elonmusk @KatieMiller @MasaSonCap what happened here

[SouthernValue @SouthernValue95]

@Fakenews263883 They’ve ordered 15GW of TPU from AVGO/GOOG which will be like &lt;1/5 of the cost

[SouthernValue @SouthernValue95]

@garyo73789087 Use your own brain and you will reach the same conclusion.

[SouthernValue @SouthernValue95]

@jukan05 Wow even worse 😆

[SouthernValue @SouthernValue95]

@davidein @jamesfishback

[SouthernValue @SouthernValue95]

@april1825j No

[SouthernValue @SouthernValue95]

AWS CEO Matt Garman on space datacenters:

“I think they are highly unlikely to be economically feasible or practical in the next decade or two.

It sounds good, you get free energy, great.

Launches are still infrequent and expensive. As a world we don’t do 1 launch per day. And we at Amazon are landing 1 GPU in a datacenter every 14 seconds.

Space doesn’t have air, so dissipating heat is hard. Serviceability is hard.

These are solvable problems but they will take time.”

https://t.co/WJWVjSkQZx

[SouthernValue @SouthernValue95]

@Midnight_Captl Sources in China...

[SouthernValue @SouthernValue95]

Too many CCP commie bots in the comments crying racism. That’s how you know this post is on the right track.

[SouthernValue @SouthernValue95]

I don’t understand why so many are rushing to defend Jensen. The most powerful man in the business world running the most important company is sleeping with the enemy. It’s horrible and puts his entire character into question.

[SouthernValue @SouthernValue95]

@DerekCh24588345 You are a moron.

[SouthernValue @SouthernValue95]

@prpl8 @Bralo4i33 @yqyj Yea