Microsoft Announces Massive Employee Buyout Program

We are pulling our head up from the Anthropic S-1 to discuss reports that Microsoft (MSFT) is offering buyouts to roughly 60,000 eligible employees. At last count, the company had 223,000 full-time employees with about 55% in the U.S., and the balance in various international locations. That means Microsoft is targeted a massive headcount reduction, and if you remember, it follows a 7% voluntary retirement program the company put in place this past April.

We also find the timing, just a few days ahead of Microsoft’s September quarter earnings report after Wednesday’s market close, to be notable. It also comes after the earnings report from Meta (META) and the market’s focus on capex spending and free cash flow. Per market consensus figures supplied by Alpha Sense, Microsoft is expected to spend $195 billion to $200 billion in the current fiscal year that ends June 2027 as well as repurchase about $20 billion stock. Those figures, along with the revenue, margin and other consensus figures, imply the company should generate around $18 billion in free cash flow.

That fiscal 2027 free cash flow figures are down from figures north of $65 billion in the last few years, and it stands to reason that Microsoft may be looking for ways to trim costs as it continues to invest in AI and data center/cloud capacity. We’re discussed reports published in early September that Microsoft is planning for 38 gigawatts of data center capacity to meet demand, which means more than tripling its current capacity near 12 gigawatts.

That buildout of Microsoft capacity is expected to run through 2032 and that suggests a staged build out so it balances capacity additions with demand so it can preserve or improve margins. In our view, that’s a disciplined approach and it’s not too different than the second half of Meta’s (META) announced $60 billion at the market share sale mechanism it shared on Monday morning.

Monday’s Microsoft announcement leads us to think the odds of the firm upsizing its capital spending figure over the coming year is high. Back in July, management flagged it would spend $50 billion in the September 2026 quarter, and following the step up in spending at SpaceX (SPCX) and Meta (META) as well as Amazon’s (AMZN) capacity constraint comments we discussed on Monday morning, it doesn’t take much to get well past that $195 billion to $200 billion figure Wall Street has penciled in for the current fiscal year.

In our view, the degree to which that capex figure is increased will matter but so too will Microsoft’s comments about free cash flow. Currently the market sees Microsoft as the lone hyperscaler poised to deliver positive free cash flow in 2027. If management can reinforce that message while further scaling AI and data center capacity it would give Wall Street another reason besides the recent business resegmentation to re-think its competitive position.

We look forward to what Microsoft will share Wednesday afternoon, and odds are pretty high we’ll be resetting our price target. We say that based on what we know today with an upward bias, but we’ll be sure to pay close attention to what is shared, especially on the backlog and margin front as well as capex and free cash flow ones.

More Pro Portfolio

At the time if publication, TheStreet Pro Portfolio was long MSFT, META and AMZN.