Microsoft (MSFT -1.37%) just reported a key milestone. On its earnings call for the fourth quarter of its fiscal 2026 (which ended June 30), it told investors that its cloud platform, Azure, had surpassed $100 billion in annual revenue for the first time.
The disclosure might have been more meaningful to investors if this had not been the first public revelation of Azure's revenues. The company plans to remedy this by regularly reporting Azure revenue moving forward. Still, the stock has made only modest gains in 2026, which may leave investors wondering whether it is still a buy.
Image source: The Motley Fool.
The state of Microsoft stock
Microsoft stock is up by about 3% this year. However, that's a stark improvement over where it was a few months ago. The stock suffered a 27% year-to-date decline this summer before recovering.
NASDAQ: MSFT
Key Data Points
Anxiety about the company's massive capital expenditures (which were $116 billion in its fiscal 2026) may have weighed on the stock. Its Copilot platform suffers from a perception that it is not the AI engine of choice unless one is operating on a Microsoft platform such as Windows or Visual Studio.
Additionally, its tight relationship with OpenAI has become a mixed blessing. In the early days, Azure had exclusive hosting rights to frontier models like GPT-6 and earlier versions, and Microsoft embedded OpenAI technology in many of its products.
Still, for a time, it made Microsoft overly dependent on OpenAI, hampering in-house development. Over time, both companies wanted to develop AI separate from one another, and that separation may have left Microsoft behind its competitors in some respects.
Amid that situation, the news that Azure surpassed $100 billion in yearly revenue gave investors confidence that the company's AI efforts had begun to bear fruit.
Also, in fiscal 2026, revenue increased by 18% to $332 billion. The cost of revenue and expenses grew more slowly than that. Hence, Microsoft earned 31% more than it did a year ago, reporting $134 billion in net income for the fiscal year.
Consequently, Microsoft's shortcomings are more a question of relative performance. Its P/E ratio of 28 is arguably reasonable given its growth. Nonetheless, Alphabet's revenue grew by 24% in the first half of 2026, and its P/E ratio is just 17. Also, with Amazon trading at 20 times earnings, Microsoft stock appears to offer a less attractive value proposition.
Investing in Microsoft
At current levels, Microsoft appears fairly valued.
Indeed, the $100 billion in Azure revenue and the income growth show the company is holding its own. Also, even amid its competition, holding an edge on Microsoft platforms carries significant value.
Unfortunately, the stock continues to underperform its peers. Users have gravitated toward other AI platforms outside of Microsoft environments. Moreover, its hyperscaler rivals, Alphabet and Amazon, are available at lower valuations.
Hence, while Microsoft shareholders should continue to hold onto their positions, they should probably put available cash to work in other investments as well.
