Not long ago, Microsoft (MSFT 1.46%) was viewed as one of the top artificial intelligence (AI) stock picks. Few doubted the company's ability to thrive, and nothing fundamental about its position in the tech world has really changed over the past year. However, the perception of Microsoft in the market has.
Microsoft stock is down by about 17% so far this year, while the S&P 500 (^GSPC +0.38%) is up by about 7%. That's a huge delta in the performance, and it may have investors wondering if now is the right time to buy or if the tides have turned on Microsoft.
I'm firmly in the buy camp, as I think Microsoft is a screaming deal, and I have the numbers to back that view up.
Image source: Getty Images.
Microsoft rarely gets this cheap
First, consider how Microsoft is doing as a company, especially in the all-important AI realm. There are primary ways that it's benefiting from the AI infrastructure build-out: Integrating AI tools into its core products (primarily via Copilot) and leasing cloud computing capacity and tools (Azure). In its fiscal 2026 Q3, which ended March 31, both of these businesses were doing outstandingly.
NASDAQ: MSFT
Key Data Points
Azure's revenue rose 40% year over year, showcasing strong demand for cloud services needed to process, train, and run AI workloads. Its AI business grew at a 123% pace as its annual revenue run rate rose to $37 billion. It would be hard to expect better performances from those two segments, and most investors are satisfied with Microsoft's AI results.
Despite that, Microsoft's stock trades at a pretty cheap valuation. When gauging the valuations of AI hyperscalers, I think the best earnings-related metric to use is cash from operations, as that excludes how much money they are spending on data centers, as well as the benefits or losses they are booking on investments. (And Microsoft's top line is impacted by its investment portfolio in a major way, thanks to its large position in OpenAI.) On a price-to-cash-from-operations basis, Microsoft hasn't been in a zone this cheap since 2019.
MSFT Price to CFO Per Share (TTM) data by YCharts.
That notable dip showcases the screaming bargain that Microsoft is. However, context is important, too. So, let's compare it to some of its big tech peers.
MSFT Price to CFO Per Share (TTM) data by YCharts.
Microsoft and Amazon are about in the same boat on a valuation basis, but they're far cheaper than Alphabet, Apple, and Nvidia. While I'd be inclined to exclude Nvidia from this comparison due to its rapid growth rate, Apple and Alphabet are two direct comparisons that trade at obvious premiums to Microsoft.
I think there's no reason why Microsoft shouldn't trade at similar levels as well, and it could return to them someday, making Microsoft a strong buy now.
