Berkshire requires a 25–50% discount to intrinsic value before buying.
Buffett Quality Checklist
✓ROE >15% consistently (≥7 of last 10 years)
✓Free cash flow positive (≥8 of last 10 years)
✓Conservative leverage — Debt/Equity below 1
✓Revenue growing at CAGR >5%
✓EPS growing at CAGR >5%
10-Year Financial History — SEC EDGAR 10-K Filings
Year▲
Revenue▲
Net Income▲
FCF▲
Owner Earnings▲
ROE▲
Net Margin▲
LT Debt▲
Cash▲
2016
$91.2B
$20.5B
$25.0B
$17.1B
24.7%
22.5%
$40.6B
$6.5B
2017
$96.6B
$25.5B
$31.4B
$23.5B
29.1%
26.4%
$77.1B
$7.7B
2018
$110.4B
$16.6B
$32.3B
$12.6B
20.0%
15.0%
$76.2B
$11.9B
2019
$125.8B
$39.2B
$38.3B
$35.0B
38.3%
31.2%
$72.2B
$11.4B
2020
$143.0B
$44.3B
$45.2B
$39.5B
37.4%
31.0%
$63.3B
$13.6B
2021
$168.1B
$61.3B
$56.1B
$49.9B
43.2%
36.5%
$58.1B
$14.2B
2022
$198.3B
$72.7B
$65.1B
$61.5B
43.7%
36.7%
$49.8B
$13.9B
2023
$211.9B
$72.4B
$59.5B
$55.3B
35.1%
34.1%
$47.2B
$34.7B
2024
$245.1B
$88.1B
$74.1B
$58.9B
32.8%
36.0%
$44.9B
$18.3B
2025
$281.7B
$101.8B
$71.6B
$59.3B
29.6%
36.1%
$43.2B
$30.2B
Warren & Charlie
Buffett / Munger — quality, moat & valuation
MICROSOFT CORP (MSFT) — Investment Memo
🐂 The Bull Case (Warren's voice)
Why is the moat durable and why does it compound?
Switching costs in Office, Azure, and Windows are decades deep – retraining an enterprise is a $100M+ headache.
Network effects on LinkedIn, GitHub, and the Xbox ecosystem grow stickier as user bases expand.
Recurring subscription revenue (M365, Azure, Game Pass) is $200B+ annual with 36% net margins – a cash-printing machine that compounds at 12%+ FCF growth.
What makes the economics exceptional — specifically?
Zero incremental capex for existing software margins: Office and Windows cost nearly nothing to distribute once built.
Pricing power proven: M365 price hikes absorbed without churn – margins expanded from 22.5% to 36.1% over a decade.
Capital-light on the core: debt flat ($43B) while revenue tripled to $282B – they fund growth with operating cash flow, not leverage.
At what price range does this become genuinely attractive to Berkshire?
Below $250/share – a 12x FCF multiple on $71.6B FCF (implied market cap ~$1.9T).
At that price, the AI capex nightmare is fully discounted, and you get the switching-cost moat for free.
Current DCF estimate is $284.84/share – fair value, not a steal.
🐻 The Bear Case (Charlie inverts)
Munger's rule: "Show me where I'll die and I won't go there."
Scenario 1: AI commoditization (most likely, 5–7 years)
Large language models become interchangeable – Azure AI pricing collapses to thin margins like AWS compute.
$74B+ annual capex (implied) becomes stranded depreciation. ROE sinks from 29.6% to single digits.
Evidence today: The $30B NI-FCF gap – reported profits are 42% higher than cash flow. Accounting games cover real trouble.
Scenario 2: Regulatory breakup (10–15 years)
Global antitrust targets the Office-Azure-LinkedIn ecosystem – forced interoperability kills switching costs.
No moat without the walled garden. 20% revenue at risk.
Scenario 3: Capital allocation catastrophe (3–5 years)
Activision ($69B) and AI datacenter buildout are empire-building. ROE peaked at 43.7% in 2022, now 29.6% – incremental capital earns -14 percentage points less.
If AI bet fails, you're left with concrete, chips, and a fading cash machine.
Most likely? Scenario 1. AI will be a race to the bottom – Microsoft is spending more than any competitor, but Google and Amazon can match. The moat is narrowing.
Verdict: Expensive by 46%. At $415, you're paying for perfect AI monetization and ignoring the $30B cash gap. The moat is real but the price is delusional.
Verdict: WATCH
The switching-cost moat in Office and Azure survives 20 years, but the $30B NI-FCF gap and declining ROE signal that AI capex is destroying returns on incremental capital. Wait for a price below $285 – or a catalyst that proves the cash quality is real.
Data sourced from SEC EDGAR XBRL filings (10-K only). For educational purposes — not investment advice.