Anthropic just knocked Microsoft stock lower again but the company’s cash flow still looks as robust as ever.

When an Anthropic launch set off the SaaSpocalypse back in February, buying the dip on Microsoft paid off handsomely.

Just like nine months ago, the stock fell 2.2% Tuesday after Anthropic unveiled Claude Sheets, a spreadsheet tool that resembles Microsoft Excel, alongside new whiteboard and office products.

It’s an awkward headline, given Microsoft is one of seven companies slated to buy into a $26 billion private placement at Anthropic’s IPO price.

At any rate, the question investors must ask themselves now is whether this will pan out with the same rebound that put SaaSpocalypse fears to rest.

In the first quarter, a series of Anthropic plug-ins for Claude ended up sparking widespread selling pressure on Microsoft, Adobe, Salesforce and other software names.

The iShares Expanded Tech-Software ETF fell 4.6% in a single day in early February while Microsoft dropped 2.9%.

Yet buying Microsoft at that close would have returned 29.7% as of Tuesday, compared with 17.5% for the software ETF.

Microsoft did end up sliding another 14.2% in late June before recovering back to highs again in recent weeks.

Even with Tuesday’s decline, the stock sits just 4% below its record close from November 4.

The differentiator for Microsoft against its mega-cap peers, however, is cash.

It generated $18.6 billion of free cash flow last quarter, which makes it one of the few hyperscalers that can still fund its AI buildout with the cash it earns.

Meta, Oracle, Alphabet and Amazon all went negative in their latest quarters. Amazon alone burned through $34.8 billion.

Even after counting $7.4 billion of finance leases, Microsoft remained positive.

What’s more, Microsoft executives have said the company expects to stay free cash flow positive this fiscal year.

None of this guarantees Microsoft won’t slide further from here. But if this is another SaaSpocalypse, Microsoft heads into it as the only big AI spender that can still afford to pay for its own ambitions.

🏦 Consumer prices rose more than expected in October. The consumer price index climbed 0.4% and core prices rose 0.3%, each a tenth above forecasts, and traders now see a 13.6% chance of a half-point hike in December. (CNBC)

🤖 Nvidia extended its slide as scrutiny of its CEO grew. Shares fell 5.5% Tuesday after The Information reported that a woman the US government reportedly identified as a Chinese intelligence asset may have helped facilitate at least $7.5 billion in Nvidia chip shipments through Chinese companies. (Yahoo Finance)

🚀 Anthropic’s IPO could hand Amazon and Google a $411 billion windfall. That’s the combined value of their stakes at $78 a share, the top of Anthropic’s proposed range, according to Reuters calculations based on a filing. (Reuters)

Josh Schafer is an investment writer at Barron’s and authors the Searching for Signals Substack. We sat down to discuss the headline risk around Nvidia’s Jensen Huang, why the AI trade is getting later, and the three stocks he likes right now.

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🗓 November 11, 2022: FTX filed for Chapter 11 bankruptcy and Sam Bankman-Fried resigned as CEO. The crypto exchange had been valued at $32 billion earlier that year.

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