Microsoft (MSFT +0.66%) has been a disappointment to its shareholders this year, to say the least. While many other artificial intelligence (AI) stocks are at or near all-time highs, Microsoft is down around 15% so far in 2026. But that doesn't necessarily mean that it's going to stay there.
When you look at how the company is actually doing and examine its valuation from a historical standpoint, it becomes clear that Microsoft doesn't belong in a slump; it belongs at fresh all-time highs like its peers. I think it can make a monster comeback this year and notch a new all-time high by the end of 2026, so investors should take advantage of the low price that it's presenting now.
Image source: Getty Images.
Microsoft is delivering solid results
Microsoft recently announced its fiscal 2026 Q3 results, and they were outstanding. Revenue was up 18% year over year, and operating income was up 20%. There's not a whole lot to be disappointed with there, as it conveys a strong company getting stronger.
Azure, Microsoft's cloud computing business, is one of the biggest ways AI spending shows up. Clients rent computing power on Azure to train and run AI models, making it a massive revenue driver for Microsoft. Azure's revenue grew 40% in the quarter.
NASDAQ: MSFT
Key Data Points
Microsoft's AI business outside of cloud computing is also booming. It sits at a $37 billion annual run rate, and grew at a jaw-dropping 123% year-over-year pace.
From that standpoint, it seems pretty clear that Microsoft is doing well as a business, yet it isn't translating into stock performance.
However, a company can only have incredible business results and poor share price performance for so long before the stock gets too cheap and the broader market takes notice. I think we're nearing that point.
My preferred valuation metric for Microsoft's stock is the operating price-to-earnings ratio. Instead of using net income as the denominator, it uses operating income. Operating income isn't affected by one-time expenses such as tax events or gains on investments. Trading at about 21 times operating income, Microsoft is around the cheapest it has been in the past decade.
MSFT Operating PE Ratio data by YCharts.
Microsoft is operating at a high level and trading at a low valuation. It's hard to ask for much more, which is why I think Microsoft is a top AI investment now. It may take a bit of time for it to come back into favor with the market, but when it does, it will deliver impressive upside.
