Microsoft (MSFT +1.11%) has been a stock market leader over nearly the past decade, but it has fallen a bit recently. While some stocks have fallen out of favor with the market, it's usually for slowing growth or exploding expenses. While Microsoft's capital expenditures are rising alongside every other artificial intelligence (AI) hyperscaler, it's nothing out of the norm.
Furthermore, many of those companies are near all-time highs, so Microsoft's latest sell-off is a real head-scratcher. As a result, I think right now is an excellent time to buy Microsoft stock, as there have seldom been buying opportunities like this over the past decade.
Image source: Microsoft.
Microsoft has unlinked from the market
For the past decade, Microsoft and the market have been closely tied together. However, that link broke recently.
While Microsoft sold off deeper than the S&P 500 from time to time, it was always selling off at around the same period, which is why the chart depicting the percent off of an all-time high matches nicely. However, the market is only down around 3% from its all-time high right now, while Microsoft is down around 25%. That's a huge shift from the normal link we've known over the past decade.
Microsoft also isn't doing anything wrong. For its fiscal 2026's second quarter (ended Dec. 31), management expected revenue between $79.5 billion and $80.6 billion. They delivered revenue of $81.3 billion, growing at a 17% pace. So not only did they outperform internal expectations, but they're also growing at a rapid pace.
NASDAQ: MSFT
Key Data Points
The star of the show is Azure, its cloud computing platform. Azure grew at a 39% pace, a figure that could have been higher if Microsoft used some of its newly installed computing resources for external use instead of internal use. Regardless, there's a huge backlog for cloud computing thanks to massive demand from generative AI, and that will keep Microsoft's primary growth engine powered for some time. From a valuation standpoint, Microsoft rarely gets this cheap.
MSFT Operating PE Ratio data by YCharts
I'm using the operating price-to-earnings ratio because it excludes one-time earnings effects and the gains of various investments. From this standpoint, Microsoft has rarely traded this cheaply over the past decade.
It's not anything Microsoft is doing wrong; it's just the market's current sentiment. Investors should treat this sell-off as a gift, as it rarely occurs with Microsoft stock. Opportunities to buy Microsoft stock at this price tag only come around once every few years, and investors shouldn't squander this opportunity.
