Microsoft, Oracle to Gain 80% Cash Tax Savings from Trump's "Big Beautiful Law"

Evercore ISI has released a research report indicating that software companies, including Microsoft (MSFT.US) and Oracle (ORCL.US), are poised to benefit from certain provisions of the "Big Beautiful Law" proposed by former U.S. President Donald Trump. This legislation is expected to significantly enhance the free cash flow of these companies.

The report highlights that the "Big Beautiful Law" includes tax incentives and regulatory changes that could lead to substantial financial benefits for Microsoft and Oracle. These provisions are designed to encourage domestic investment and innovation, which aligns with the core business strategies of both companies. By leveraging these incentives, Microsoft and Oracle could see a notable increase in their cash reserves, allowing them to invest more in research and development, expand their product offerings, and potentially increase their market share.

Evercore ISI maintains an "outperform" rating for both Microsoft and Oracle, reflecting their confidence in the companies' ability to capitalize on the opportunities presented by the "Big Beautiful Law." The firm believes that the implementation of these provisions will not only boost the companies' financial performance but also strengthen their competitive positions in the global software market.

The report underscores the importance of regulatory support in driving corporate growth and innovation. By providing favorable tax policies and regulatory frameworks, governments can create an environment that fosters business expansion and technological advancement. For Microsoft and Oracle, the "Big Beautiful Law" represents a significant opportunity to enhance their operational efficiency and financial stability, positioning them for long-term success in the dynamic software industry.

Evercore ISI's analysis team, led by Kirk Materne, points out that the law could provide implicit free cash flow benefits to profitable software companies due to optimized tax treatments for research and development expenses and capital expenditures. The law includes the restoration of full deduction for domestic research and development expenses and the reinstatement of 100% bonus depreciation for qualified capital expenditures used between 2025 and 2029.

Evercore ISI emphasizes that the net effect of these provisions is that research and development expenses in 2025 could result in an additional 80% cash tax savings. For capital expenditures, the phased reduction of bonus depreciation policies starting from 2022 will be reversed, allowing companies to deduct 100% of their capital expenditures in the first year, rather than the previous 40% immediate deduction plus 60% asset cycle amortization.

Microsoft and Oracle, with their substantial capital expenditures, are among the biggest beneficiaries. Evercore ISI estimates that the two companies' capital expenditures in 2025 will be $69.7 billion and $23.6 billion, respectively, primarily directed towards artificial intelligence and data center construction.

More broadly, as companies across various industries benefit from these policy advantages, Evercore ISI anticipates increased investment in the technology sector, particularly in artificial intelligence. This influx of investment is expected to drive further innovation and growth in the industry, benefiting not only Microsoft and Oracle but also other players in the software and technology ecosystem.