Any way you look at it, Microsoft (MSFT 2.27%) is a juggernaut. Its Windows operating system is used in over 70% of desktop PCs. Millions of people use Microsoft's productivity software. Microsoft Azure is the second-largest cloud services provider. The company now trails only Nvidia (NVDA -1.10%) in market cap. It's one of the biggest beneficiaries of a massive artificial intelligence (AI) tailwind.
Is investing in this top AI stock free money? It might be easy to jump to that conclusion. However, I wouldn't go that far. But while investing in Microsoft stock isn't free money, I think it's a smart money move.
Image source: The Motley Fool.
Microsoft's appeal
It's not an exaggeration to say that Microsoft is a financial fortress. The tech giant generated a whopping $281.7 billion and earnings of $101.8 billion in fiscal year 2025, which ended June 30, 2025. Both the top and bottom lines increased by 15% year over year. Microsoft isn't just huge, it's nimble.
What's driving this impressive growth? In large part, AI. In my view, Microsoft made a brilliant move a few years ago by investing in and partnering with OpenAI. Today, the company has OpenAI's GPT-5 large language model (LLM) integrated throughout its product lineup. This integration is paying off handsomely.
The demand for anything and everything AI-related has provided a huge catalyst for Microsoft's cloud services. In its latest quarter, the company's Intelligent Cloud segment (which includes Azure) revenue soared 26% year over year.
Microsoft is also staking a claim in one of the most exciting new opportunities -- quantum computing. Earlier this year, the company introduced its Majorana 1 quantum chip powered by a new type of material called a topoconductor. Microsoft believes that its topoconductor architecture could enable squeezing 1 million qubits (the basic unit of information in quantum computing) on a single chip. This could pave the way for large-scale quantum computers that can be used in a wide variety of applications.
A Wall Street darling
Microsoft's share price has more than doubled over the last three years. Its stock is up over 20% in 2025. Wall Street thinks there's more room to run.
The consensus 12-month price target for Microsoft reflects an upside potential of roughly 19%. Several analysts with the most recent updates are even more bullish. For example, Morgan Stanley (MS 0.32%) projects that Microsoft's stock will climb 21%. Stifel's (SF 1.65%) price target is more than 25% above Microsoft's current share price.
What's especially impressive to me is how widespread the positive sentiment about Microsoft is on Wall Street. Of the 58 analysts surveyed by S&P Global (SPGI -0.30%) in October, 13 rated the stock as a "strong buy." Another 44 analysts rated Microsoft as a "buy." The sole outlier recommending holding the stock.
It's not surprising that Wall Street likes large-cap AI stocks right now. However, the enthusiasm over Microsoft is remarkable.
Smart money, not free money
I agree with the vast majority of analysts that buying Microsoft is a smart money move right now. The company's growth prospects remain strong, in my view. But investing in Microsoft is emphatically not free money. Why? Two reasons especially stand out.
First, AI infrastructure spending could slow down. Much of Microsoft's surging revenue and profits has been a direct result of customers investing heavily in developing AI applications on Azure. However, some warn that we're in an AI bubble. That list includes OpenAI CEO Sam Altman and Amazon (AMZN 0.61%) founder Jeff Bezos.
Second, Microsoft's valuation is admittedly steep. The stock's forward price-to-earnings ratio is over 33. Any hiccup in growth could cause Microsoft's shares to tumble at that premium multiple.
Investing in stocks (or anything else, for that matter) always comes with risks. The question that investors must determine is whether or not the potential rewards make those risks worth taking. In Microsoft's case, I think the answer is a resounding "yes."
