Shares of Microsoft (MSFT 1.13%) fell as much as 36% in late March before rebounding. Even after the bounce, the stock is still down about 23% despite the business continuing to perform well.
The decline coincided with a broader rotation out of artificial intelligence (AI) stocks. Yet analysts remained bullish throughout the sell-off, with recent calls citing Microsoft's AI and cloud momentum.
Image source: The Motley Fool.
Last quarter, revenue from Azure, Microsoft 365, and other cloud services rose 26% year over year, reaching an annual run rate of $204 billion. That's a large share of Microsoft's overall revenue, supported by high-growth, recurring subscriptions. Azure remains the standout, with revenue up 39% year over year.
After the huge run AI stocks have had, it's reasonable for investors to question whether massive spending on data centers and infrastructure will translate into attractive returns. But the pullback may also be creating an opportunity.
NASDAQ: MSFT
Key Data Points
Microsoft's capital expenditures have nearly tripled over the past three years to $83 billion. About one-third of last quarter's spend went toward long-lived assets like data centers -- investments management expects to monetize over the next 15 years and beyond.
In other words, today's heavy spending could lay the groundwork for higher margins over time as AI services scale across that infrastructure. Near-term profits may face pressure from upfront costs, but the strategy is built for long-term payoff.
With Microsoft now trading at a lower earnings multiple, the dip could be a compelling entry point for investors looking to start or add to a position.
