Microsoft (MSFT 0.06%) hasn't been an exciting growth stock to own lately. It's trailing all of its fellow "Magnificent Seven" stocks so far in 2026, with a 13% year-to-date decline. It's also down by more than 20% from its all-time high.
However, that tumble is a buying opportunity. Microsoft's fundamentals have continued to improve, and it trades at a P/E ratio of just 25, which is a lower valuation than every Magnificent Seven stock except Meta Platforms (META +0.52%).
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Investors have come to expect solid earnings
Microsoft doesn't deliver the type of growth you'll find in Nvidia's press releases, but it still produces solid results for long-term investors. The tech giant reported an 18% year-over-year revenue jump in its fiscal 2026 third quarter, which ended March 31. Net income increased by 23% year over year.
NASDAQ: MSFT
Key Data Points
Microsoft Cloud was the major catalyst fueling those numbers. Businesses rely on Microsoft's cloud platform for scalable IT infrastructure and pay monthly fees to continue using the platform.
Once a company has set its operations up using Microsoft Cloud, it is difficult to switch to another cloud provider. Companies that do so may have to rebuild parts of their digital infrastructure that relied on Azure-specific tools and retrain employees on how to use the replacement cloud platform. Businesses prefer to avoid those types of headaches, so that recurring revenue is fairly reliable. Between established clients and new ones, Microsoft has been able to deliver steady cloud revenue growth.
Microsoft also has other business segments that continue to gain ground. For example, LinkedIn revenue climbed by 12% year over year, while search advertising revenue achieved the same growth rate.
Agentic AI presents a new opportunity
Investors regularly look at Microsoft Cloud's numbers to assess how the company will perform in future quarters. However, they may also want to focus on Microsoft's AI business, which surpassed an annual revenue run rate of $37 billion in fiscal Q3. That figure was up 123% year over year. That averages out to a little more than $9 billion per quarter, which would have represented more than 10% of Microsoft's fiscal Q3 revenue.
CEO Satya Nadella cited agentic computing when describing the AI business and how it helps other companies. Enterprise agentic AI is a lucrative industry, and Grand View Research projects that the space will grow at a compound annual rate of 46.2% from now through 2030.
That tailwind may be just what gives Microsoft the momentum to get back to delivering revenue growth of 20% or more in future quarters. Such a result would see Microsoft following in the footsteps of Amazon and Alphabet, both of which have achieved meaningful revenue growth accelerations in recent quarters.
Microsoft is already well positioned to ride the agentic AI industry's growth. Its Agent 365 software helps companies create secure AI agents. Microsoft mentioned this product in a recent blog post that outlined how companies and institutions like Air India, cybersecurity company ContraForce, and the school district of Broward County in Florida are using Microsoft's AI agents to save millions of dollars while improving their operations.
Those are meaningful wins that will keep businesses in the Microsoft ecosystem. And such successes also give Microsoft greater flexibility to charge higher prices and attract more customers as positive case studies become more common.
