Key Takeaways
- MSFT has declined approximately 28% since reaching its July high, eliminating close to $1 trillion from its market capitalization
- Current forward P/E stands at roughly 22x — a level beneath the S&P 500 benchmark, representing unusual pricing for Microsoft
- Azure cloud platform delivered 39% revenue expansion in the most recent quarter, with data center capacity being the sole constraint on faster growth
- The company’s OpenAI investment could be valued above $200 billion following OpenAI’s recent $840B valuation round
- Industry analysts indicate AI tools will augment Microsoft’s software products rather than eliminate them — challenging the market’s disruption concerns
Microsoft (MSFT) shares currently represent the most attractive pricing relative to the broader S&P 500 index in more than ten years, having fallen approximately 28% from the July 2024 high of $555 per share. This market correction has erased roughly $1 trillion in valuation, bringing shares to approximately $401.
Market anxiety centers on the possibility that artificial intelligence could diminish the economic value of enterprise software — a thesis dubbed the “software apocalypse.” This theory suggests AI agents will automate functions that businesses currently purchase through software subscriptions.
However, Microsoft’s financial performance demonstrates a contrasting reality.
During fiscal Q2 2026 (ending December 31), Microsoft delivered $81.3 billion in revenue — surpassing its projected range of $79.5–$80.6 billion. Year-over-year revenue climbed 17%. Full fiscal year earnings per share projections show a 21% increase to $16.48.
Azure Drives Substantial Expansion
The quarter’s highlight came from Azure, Microsoft’s cloud infrastructure platform, which expanded 39%. Company executives noted that growth faced limitations purely from insufficient data center infrastructure. Addressing this constraint, Microsoft plans capital investments exceeding $100 billion during the current fiscal year.
Such robust expansion signals a company positioned at the heart of AI infrastructure demand rather than facing disruption. AI agents and large language models require cloud computing resources to operate, meaning Azure captures revenue regardless of AI’s eventual impact on Microsoft’s software division.
Microsoft’s Intelligent Cloud segment appears poised to surpass the software business as the primary revenue contributor.
OpenAI Investment Creates Massive Value
OpenAI represents another significant factor. Microsoft invested $13 billion into the AI startup across multiple years, primarily through Azure computing credits. OpenAI’s most recent funding established an $840 billion valuation. While Microsoft’s ownership percentage has been diluted through subsequent rounds, analyst estimates place the stake’s current worth above $200 billion.
Should OpenAI maintain its leadership position in artificial intelligence, Microsoft remains its principal shareholder.
The disruption narrative faced recent challenges when Anthropic, a prominent AI agent developer, presented demonstrations showing agents operating in conjunction with applications like Excel and PowerPoint rather than supplanting them. The iShares software ETF rebounded following this presentation, while MSFT shares gained 5% in subsequent trading days.
Microsoft 365 Copilot, the company’s $30 monthly AI assistant offering, currently serves 15 million paying subscribers — representing 3% of the total installed base. This gradual adoption mirrors Microsoft’s traditional product rollout patterns. The company initially lagged in cloud computing before ascending to the second-largest cloud provider after AWS.
The current forward P/E around 22x positions Microsoft below valuations for Coca-Cola, Home Depot, and Colgate-Palmolive. When MSFT last traded at this multiple in January 2023, shares subsequently gained 73% over the following year.
RBC analyst Rishi Jaluria characterizes the stock as “very undervalued,” highlighting Microsoft’s strategic positioning across Azure, security infrastructure, data management, LinkedIn, and gaming. Melius Research analyst Ben Reitzes recently adjusted his rating to Neutral while noting that substantial bearish assumptions may already be reflected in current pricing.
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, expanding 16%.
