Key Points
Not long ago, Microsoft (NASDAQ: MSFT) was viewed as one of the top artificial intelligence (AI) stock picks. Few doubted the company’s ability to thrive, and nothing fundamental about its position in the tech world has really changed over the past year. However, the perception of Microsoft in the market has.
Microsoft stock is down by about 17% so far this year, while the S&P 500 (SNPINDEX: ^GSPC) is up by about 7%. That’s a huge delta in the performance, and it may have investors wondering if now is the right time to buy or if the tides have turned on Microsoft.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
I’m firmly in the buy camp, as I think Microsoft is a screaming deal, and I have the numbers to back that view up.
Image source: Getty Images.
Microsoft rarely gets this cheap
First, consider how Microsoft is doing as a company, especially in the all-important AI realm. There are primary ways that it’s benefiting from the AI infrastructure build-out: Integrating AI tools into its core products (primarily via Copilot) and leasing cloud computing capacity and tools (Azure). In its fiscal 2026 Q3, which ended March 31, both of these businesses were doing outstandingly.
Azure’s revenue rose 40% year over year, showcasing strong demand for cloud services needed to process, train, and run AI workloads. Its AI business grew at a 123% pace as its annual revenue run rate rose to $37 billion. It would be hard to expect better performances from those two segments, and most investors are satisfied with Microsoft’s AI results.
Despite that, Microsoft’s stock trades at a pretty cheap valuation. When gauging the valuations of AI hyperscalers, I think the best earnings-related metric to use is cash from operations, as that excludes how much money they are spending on data centers, as well as the benefits or losses they are booking on investments. (And Microsoft’s top line is impacted by its investment portfolio in a major way, thanks to its large position in OpenAI.) On a price-to-cash-from-operations basis, Microsoft hasn’t been in a zone this cheap since 2019.
MSFT Price to CFO Per Share (TTM) data by YCharts.
That notable dip showcases the screaming bargain that Microsoft is. However, context is important, too. So, let’s compare it to some of its big tech peers.
MSFT Price to CFO Per Share (TTM) data by YCharts.
Microsoft and Amazon are about in the same boat on a valuation basis, but they’re far cheaper than Alphabet, Apple, and Nvidia. While I’d be inclined to exclude Nvidia from this comparison due to its rapid growth rate, Apple and Alphabet are two direct comparisons that trade at obvious premiums to Microsoft.
I think there’s no reason why Microsoft shouldn’t trade at similar levels as well, and it could return to them someday, making Microsoft a strong buy now.
Don’t miss this second chance at a potentially lucrative opportunity
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
- Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $520,468!*
- Apple: if you invested $1,000 when we doubled down in 2008, you’d have $55,573!*
- Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $442,220!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, available when you join Stock Advisor, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of June 11, 2026.
Keithen Drury has positions in Alphabet, Amazon, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.
5 Stocks Our Experts Predict Could Double In the Next Year
By submitting your email, you'll also get a free pivot & flow membership. A free daily market overview. You can unsubscribe at any time.
