Jim Cramer Calls Microsoft (MSFT) a Buy, Citing $18.6B Free Cash Flow

Cramer Backs Microsoft After Earnings

Mad Money host Jim Cramer called Microsoft (MSFT) a buy on this week's show, making the software company his preferred route into the cloud build-out after a wave of Big Tech earnings put capital spending under scrutiny. The comments landed after Microsoft, Alphabet and Amazon reported within days of one another, concentrating the sector's spending debate into a single week. His case rested on one line in the accounts. Microsoft kept free cash flow, the cash left after capital spending, positive at $18.6 billion, and it managed that while its largest rivals posted deficits for a second consecutive quarter. The quarter was not flawless. First-quarter free cash flow still fell 27% year over year, evidence that the artificial intelligence build-out strains even the strongest balance sheet in the group. The offset came on the revenue side, where the Azure cloud business grew 48%. Chief Financial Officer Amy Hood told investors Microsoft expects to remain free cash flow positive through fiscal 2027, a commitment that gives holders a dated checkpoint rather than an open-ended promise. Cramer credited management's discipline for the distance between Microsoft and its competitors. “They run it like a business, not a science project,” he said. On his reading, the three reports split the cloud giants by a single test: which of them can pay for the build-out from internal cash. By that measure Microsoft stands alone among the four largest spenders as the only one still generating positive free cash flow. He attached one condition: if capital spending runs above the guided level, that advantage narrows, and the cash-flow argument for owning the stock weakens with it. His Charitable Trust owns all three companies he discussed, an exposure he did not hide.

Alphabet's Second Straight Cash Burn

Alphabet (GOOGL) is the name Cramer said carries too much baggage. Free cash flow was negative $9.1 billion in the third quarter, according to its quarterly filing with the SEC, and the second quarter came in at negative $5.9 billion, so the deficit widened as spending accelerated. Debt and capex fears shadow the company even while its cloud business keeps growing. To bridge the gap, Alphabet raised $12.4 billion through share sales and $28.7 billion through notes, and $27.6 billion of new shares remain available for sale under its at-the-market program, a shelf that can dilute existing holders when drawn. Committed compute costs add to the load: Alphabet agreed to pay SpaceX $920 million a month through June 2029 for capacity covering about 110,000 Nvidia graphics processing units, an obligation that runs regardless of how AI demand develops. That mix of fresh equity and fresh debt covering an operating deficit is the baggage he pointed to, and his trust still holds the shares, so the critique lands as a sizing call rather than a sale. His rating here is conditional: he said he would wait for analysts to cut their estimates before adding to the position, a stricter standard than the one he applied to Microsoft. Amazon (AMZN) reported into the same week and missed Wall Street's earnings estimate, although its operating margin reached a company-record 13.9%, according to its earnings release. The AWS cloud unit grew 39.3% to a $184 billion annualized run rate, though the bottom-line miss is what Cramer wants explained on the call before he adds. He called Amazon a buy as well.

Both names traded lower into Friday: COINOTAG data puts Microsoft at $524.62, down 4.41% over 24 hours, and Alphabet at $280.31, down 4.58%. Microsoft sits just above its strongest support level at $523.95, which COINOTAG's composite scoring rates 89 out of 100, while the nearest resistance stands at $549.08 with a score of 87/100. Alphabet's daily RSI of 17.9 marks it as the more stretched stock, and its daily trend reads as a downtrend. For anyone following Cramer's Microsoft call, the near-term test is simple: whether the $523.95 floor holds through the sell-off.