On Friday, billionaire investor Bill Ackman disclosed that his publicly traded hedge fund, Pershing Square USA (PSUS +0.56%), had established a core position in Microsoft (MSFT 0.79%). Interestingly, according to Pershing's 13-F filing, Ackman sold most of his fund's position in Microsoft competitor Alphabet to do so.
Microsoft has lagged the market in 2026, especially other AI stocks, because of a combination of fears, and has fallen to one of its lowest valuations in the past decade.
Ackman thinks these fears are overblown. Yet even beyond Ackman's defense of the company, there are even more interesting reasons to buy shares of this tech leader today.
NASDAQ: MSFT
Key Data Points
The fears over Microsoft
Microsoft stock has recently been the victim of two overriding fears. The first is affecting all enterprise software-as-a-service stocks today, in what has been coined the "SaaS-pocalypse."
The thinking here is that, after the release of Anthropic's Claude Code, artificial intelligence can now write software code as well as, or even better than, the best software engineers. That is causing fear that software companies' economic moats can easily be eroded.
The second big fear stems from Microsoft's seeming dependence on OpenAI, both for its own AI products, such as Copilot, and for the growth of Microsoft Azure, Microsoft's cloud computing platform. While OpenAI was a clear leader in the early days of the AI revolution, it appears to have ceded the outright technological lead over the past half-year to both Gemini and Anthropic, which have matched OpenAI's capabilities.
Microsoft bet early on OpenAI and has a large stake in the company; furthermore, OpenAI accounts for a huge portion of Microsoft Azure's remaining performance obligations (RPO). Thus, with OpenAI's superiority in doubt, that, in turn, casts doubt on Microsoft's AI leadership and the sustainability of Azure's 39% growth rate.
Ackman's defense
In a post on X, Ackman said these two concerns were overblown. On the software front, Ackman noted that Microsoft's M365 productivity suite isn't just a single application, but a bundle of applications tied together with Microsoft's security, compliance, and governance. That trust, combined with bundling cost efficiency, should make Microsoft's suite resilient to threats, Ackman believes. And while some question software's ability to transition from per-seat pricing to usage-based pricing, Ackman believes Microsoft will be able to execute that hybrid model. After all, Microsoft already has experience with usage-based pricing in the Azure cloud franchise.
While Microsoft's initial Copilot product, the AI assistant integrated into Microsoft's suite, underwhelmed some users, Ackman also notes that CEO Satya Nadella has recently become more involved in Copilot's research and development.
Can Microsoft thrive in the age of agentic AI? Image source: Getty Images.
On the second front, Azure's growth, Ackman also believes fears over OpenAI and the recent contract restructuring that allows OpenAI to use other clouds are misplaced. Ackman sees Microsoft's strategy as a diversification move. After all, as of the end of 2025, 45% of Azure's $625 billion RPO came from OpenAI. Microsoft also recently spread its literal AI bets, investing $5 billion in Anthropic at a $350 billion valuation last year, which also entails a $30 billion cloud computing deal with Azure. That $350 valuation looks very attractive today.
But of course, OpenAI, of which Microsoft owns 27%, isn't going away and is likely to compete vigorously to regain its lead. OpenAI just closed a $122 billion funding round at the end of March, valuing the company at $852 billion. That not only gives OpenAI the funds to honor its Azure contract but also means Microsoft's stake in the company is worth a little over $200 billion, assuming some dilution from the recent raise. That would account for about 6.5% of Microsoft's market cap today.
Microsoft's custom AI efforts
Beyond Ackman's defense, another important element of the Microsoft bull case is Microsoft's custom models built on custom silicon.
Unlike many other software companies, Microsoft has the financial and technological heft to invest in its own custom AI models and design its own inference chips. In early April, Microsoft introduced three new custom models: MAI-Transcribe-1, MAI-Voice-1, and MAI-Image-2, a transcription, voice-generation, and image-generation model. In addition to the highly competitive benchmarks these models achieved compared with leading models today, Microsoft also noted that they can be utilized at a significantly lower cost than what its competitors charge.
That's because not only can Microsoft cut out the margins that OpenAI or Anthropic would charge Microsoft users, but Microsoft can also deliver these models on its own custom silicon, cutting out the massive expense of Nvidia high-margin GPUs. In January, Microsoft introduced its Maia 2 inference chip, which it claimed was much faster than the custom AI chips from other hyperscalers. On its recent earnings conference call, Nadella noted that Maia 200 offers over 30% more tokens per dollar than "the latest silicon in our fleet."
All in all, Microsoft's ability to vertically integrate software, custom LLMs, and hardware differentiates it from the vast majority of software companies. That should make Microsoft a survivor and a strong competitor in the age of agentic AI, which means its 2026 sell-off is likely misplaced.
Despite a recent bounce, Microsoft still trades at roughly 21.8 times forward earnings estimates, making the stock a strong buy at these levels.
