Key Takeaways
- Microsoft shares have plummeted approximately 28% from their July high, erasing close to $1 trillion in market value
- Current forward P/E ratio sits at roughly 22x — beneath the S&P 500 mean, an unusual discount for MSFT
- Azure posted 39% revenue expansion in the most recent quarter, constrained solely by infrastructure limitations
- The company’s OpenAI investment could be valued north of $200 billion following the startup’s $840B valuation
- Industry experts suggest AI will complement rather than eliminate Microsoft’s software products, challenging doom-and-gloom predictions
Microsoft (MSFT) shares are currently trading at their most attractive relative valuation compared to the S&P 500 in more than ten years, having declined approximately 28% from the July 2024 high of $555 per share. This dramatic pullback has eliminated roughly $1 trillion from the company’s market capitalization, with shares now hovering around $401.
Market anxiety over artificial intelligence potentially destroying traditional business software value has fueled the decline — a scenario some have dubbed the “software apocalypse.” The thesis revolves around AI-powered agents that could automate functions businesses currently purchase through software subscriptions.
Yet Microsoft’s actual financial performance paints a contrasting picture.
During fiscal Q2 2026 (which concluded December 31), the tech giant delivered $81.3 billion in revenue — exceeding its projected range of $79.5–$80.6 billion. This represented 17% year-over-year expansion. Full fiscal year earnings per share are projected to climb 21%, reaching $16.48.
Cloud Platform Drives Momentum
The quarter’s star performer was Azure, the company’s cloud infrastructure platform, which expanded 39%. Management indicated the growth rate would have accelerated further if not for data center capacity constraints. To address this bottleneck, Microsoft intends to invest upward of $100 billion in capital expenditures during the current fiscal year.
Such robust expansion doesn’t characterize a company facing disruption — rather, it signals one positioned at the epicenter of AI infrastructure demand. Every AI agent and large language model requires cloud computing resources to operate, meaning Azure stands to benefit regardless of AI’s ultimate impact on Microsoft’s traditional software portfolio.
The Intelligent Cloud division is poised to surpass the software business as the corporation’s primary revenue generator.
The OpenAI Investment Wildcard
Then there’s the OpenAI dimension. Microsoft has pledged $13 billion to the artificial intelligence company across multiple years, primarily through Azure computing credits. OpenAI’s most recent funding round assigned it an $840 billion valuation. While Microsoft’s ownership percentage has been diluted, Wall Street analysts estimate the stake could exceed $200 billion in value.
Should OpenAI maintain its dominant position in the AI landscape, Microsoft would remain its principal shareholder.
The apocalyptic software narrative recently sustained a significant blow. Anthropic, regarded as a major player in AI agent development, delivered a corporate presentation demonstrating agents functioning in tandem with applications like Excel and PowerPoint — not eliminating them. The iShares software ETF rebounded following this revelation, and MSFT climbed 5% in subsequent trading sessions.
Microsoft 365 Copilot, the company’s $30 monthly AI productivity tool, has attracted 15 million paid subscribers — representing 3% of its total user base. While adoption appears gradual, this mirrors Microsoft’s historical pattern with new offerings. The company was also a latecomer to cloud computing before ascending to the second-largest provider behind AWS.
The forward P/E near 22x values Microsoft below consumer staples like Coca-Cola, Home Depot, and Colgate-Palmolive. When MSFT last traded at this valuation level — January 2023 — shares subsequently rallied 73% over the following twelve months.
RBC analyst Rishi Jaluria has characterized the stock as “very undervalued,” highlighting Microsoft’s commanding presence across Azure, cybersecurity, data platforms, LinkedIn, and gaming. Melius Research analyst Ben Reitzes recently moved to Neutral but conceded that substantial bearish concerns may already be reflected in the current price.
Microsoft’s Productivity & Business Processes division — encompassing Microsoft 365, additional enterprise software, and LinkedIn — produced $67 billion in revenue during the first half of fiscal 2026, advancing 16%.
