Billionaire investor Bill Ackman has declared a bullish stance on AI hyperscalers following a significant market selloff in June, driven by concerns over capital expenditure. Ackman amplified an analysis by Rihard Jarc of the UncoverAlpha newsletter, describing it as an important read on the sector. The endorsement comes as major technology stocks experienced their worst monthly performance in decades, with Microsoft Corp. falling 17.2% and Oracle Corp. plunging 35% in June. Other prominent hyperscalers, including Amazon.com Inc., Meta Platforms Inc. and Alphabet Inc., declined 11.9%, 10.6% and 6.1% respectively.

Market Capex Concerns

The primary trigger for the selloff was the projected capital expenditure of the five largest hyperscalers, which is expected to exceed $700 billion in 2026 for AI infrastructure. Investors have shifted focus from revenue to spending, leading to a sell-off. Bank of America noted that hyperscaler capex has risen from approximately 70% of operating cash flow in 2025 to nearly 100% in 2026. This shift leaves little room for share buybacks and dividends, with forward free cash flow as a share of net income dropping from over 100% to near zero. Consequently, the Magnificent Seven lost roughly $2.3 trillion in market value in June.

Bullish Thesis on Cloud Margins

Ackman's bullish outlook is based on the argument that hyperscalers act as tollbooths, collecting fees on every token processed regardless of the model used. The thesis suggests that enterprises are shifting from "token maxing" to routing requests to cheaper, open-weight models for routine tasks. This change increases overall usage volume, benefiting cloud platforms like Amazon's Bedrock, Microsoft's Azure AI Foundry and Google's Vertex. Historical operating margins for AWS range between 35–38%, while Google Cloud achieved a 33% margin in the first quarter of 2026. Ackman initiated a new position in Microsoft after its post-earnings drop in February, comparing the current market sentiment to the undervaluation of Berkshire Hathaway in 2000.

Microsoft's valuation metrics are lower than the industry average, suggesting potential undervaluation in the software sector. The company's Price to Earnings ratio of 22.22 is 0.35x less than the industry average, while its Price to Book ratio of 6.69 falls below the industry average by 0.1x. Additionally, the Price to Sales ratio of 8.74 is 0.68x the industry average, indicating the stock might be considered undervalued based on sales performance.

Despite these favorable valuation ratios, Microsoft's profitability metrics present a mixed picture. The Return on Equity stands at 7.89%, which is 7.3% below the industry average, indicating potential inefficiency in utilizing equity to generate profits. Conversely, the company demonstrates strong operational performance with an EBITDA of $50.28 Billion, which is 51.31x above the industry average, and a gross profit of $56.06 Billion, which is 37.37x above the industry average.

Financial Metrics Comparison

Debt to Equity Analysis

Microsoft maintains a strong financial position regarding its debt-to-equity ratio. The company has a lower level of debt relative to its equity, indicating a more favorable balance between the two with a debt-to-equity ratio of 0.14. This metric suggests a lower financial risk profile compared to its top 4 peers in the software industry.

Revenue Growth Concerns

The company is witnessing a decline in revenue growth relative to its peers. Microsoft's revenue growth rate of 18.3% is lower than the industry average of 58.69%, which indicates a challenging sales environment compared to competitors. This slower growth may be a concern for future prospects despite the strong operational metrics.