Fourteen percent revenue growth and a 26 times earnings multiple on next-year profit put the stock near $548. Capacity spend still swallows cash, so the market is about right, not cheap.
Key points
- $90.0 billion June-quarter revenue, up 18%; Azure (recast) grew 42%.
- $67.0 billion FY26 free cash flow versus $183 billion operating cash, after $116 billion capex.
- 26 times October-2027 NTM earnings of $21.08 is the 12-month target of $548.
The call
The $530 price asks for about 14% FY27 revenue growth and a mid-26 times multiple on core earnings near $19.70. That is a fair ask given 18% growth last year and Azure still above 40% in the current quarter, but not a bargain once cash conversion is counted.
I expect 14% FY27 revenue to $378 billion, operating margin 46%, and core EPS $19.66, then 12% FY28 growth to $21.85 EPS. Cash will lag until capex peaks. The market is about right.
Revenue vs free cash flow ($ billions)- Revenue
- Free cash flow
- Your FCF path
SEC filings through FY26; Grok estimates FY27-28E. Capex absorbed most OCF growth.
Valuation
| Item | Figure |
|---|
| FY27E revenue | $378 billion |
| FY27E core EPS | $19.66 |
| FY28E EPS | $21.85 |
| NTM EPS at Oct 2027 | $21.08 |
| Exit multiple | 26 times |
| 12-month target | $548 |
Twenty-six times sits below the 29.5 times trailing GAAP print because FY26 included investment gains and because free cash flow yield is 1.7%. Asymmetry is modest: 3% upside versus 8-12% if Azure decelerates faster than 30% or if leases keep FCF flat. That is a hold, not a buy.
Gross and operating margin (%)- Gross margin
- Operating margin
Company facts through June 2026 quarter; Grok FY27E average 45.9% operating.
Risks
- Azure growth falls below 30% constant currency; watch Q1 print October 28.
- Capex stays above $140 billion cash and FCF does not recover; watch cash flow statement, not the reclassified guidance.
- OpenAI receivables or related-party revenue stall; watch 10-K note 1 disclosures.
What would change my mind
A quarter of Azure below 30% with commercial cloud below 12%, or FCF above $100 billion with capex rolling over, would force a new multiple.