Microsoft generates billions in cash. Why borrow $25 billion?

Microsoft completed a $25 billion bond sale on November 4, a week after reporting $58 billion of cash from operations for its September quarter. Why add debt when the business produces so much money?

The answer starts with the cash that goes back out. Microsoft's free cash flow subtracts spending on property and equipment, but another large investing outflow sits outside that measure. The company is also preparing for a faster pace of infrastructure spending.

What the free-cash-flow figure covers

In the quarter ended September 30, Microsoft generated $58 billion from operations and paid $39.4 billion for property and equipment. That left $18.6 billion of company-defined free cash flow, down 27% from a year earlier.

There was also $12.9 billion of other investing cash outflow, up from $6.2 billion. Microsoft said the increase primarily reflected activities to facilitate component purchases.

Research by Ticker Byline shows that subtracting that additional investing outflow from the reported free cash flow leaves $5.7 billion, before cash dividends, share repurchases and finance-lease principal payments. The calculation puts two separately reported cash uses together to show more of the funding demands beyond equipment spending.

Microsoft paid $6.8 billion in cash dividends during the quarter. Its cash-flow statement also recorded $4.4 billion of share repurchases, including shares settled for employee tax withholding. Those payments compete for cash alongside the infrastructure expansion.

Borrowing adds flexibility, and a recurring bill

The new bonds were priced on October 29 and completed on November 4. They bring in about $24.91 billion after issue-price and underwriting discounts, before other offering expenses. The stated uses include investment, share repurchases and repayment of existing debt.

Eight fixed-rate series account for $23 billion of principal. Applying each rate to its principal gives about $1.28 billion a year in cash interest while all eight remain outstanding. Another $2 billion carries floating rates, so its interest bill will move with the benchmark rate.

Microsoft had substantial resources before the sale: $64.5 billion of cash and short-term investments at September 30, including $4 billion of restricted supplier investments. On the October earnings call, Chief Financial Officer Amy Hood described financing as an option to use when attractive and said the company expected positive free cash flow for fiscal 2027.

The spending pace is set to rise

Microsoft's October outlook called for more than $50 billion of capital expenditures in the December quarter, including assets acquired through finance leases. Some third-party computing capacity had shifted into the second half of fiscal 2027, pushing investment later.

Demand was growing too. September-quarter Azure revenue rose 48% from a year earlier, and group operating income increased 21% to $45.9 billion. The next test is turning the larger infrastructure base into enough additional business to support its cash and interest commitments.

Another cloud provider has chosen a different funding mix. Our Oracle financing analysis examines its completed stock-and-bond raise. The Microsoft company profile brings together the latest results, obligations and outlook.