TLDR
- Microsoft shares have plunged approximately 28% since peaking in July, erasing close to $1 trillion in market value
- Current forward P/E stands at roughly 22x — beneath the S&P 500 benchmark, an unusual discount for MSFT
- Azure cloud platform posted 39% revenue expansion last quarter, constrained solely by insufficient data center infrastructure
- The company’s OpenAI investment could exceed $200 billion in value following the AI firm’s recent $840B valuation
- Industry experts suggest AI tools will complement rather than eliminate Microsoft’s software offerings, challenging doom-and-gloom predictions
Shares of Microsoft (MSFT) have reached their most attractive price point compared to the S&P 500 in more than ten years, tumbling approximately 28% from the July 2024 high of $555 per share. This dramatic pullback has eliminated nearly $1 trillion from the company’s market capitalization, bringing shares down to approximately $401.
The decline stems largely from investor anxiety that artificial intelligence technology might decimate traditional enterprise software valuations — a scenario some market observers have dubbed the “software apocalypse.” This fear revolves around AI-powered agents potentially automating functions that businesses currently purchase through software-as-a-service subscriptions.
Yet when examining Microsoft’s actual operating performance, a contrasting picture emerges.
During its fiscal second quarter of 2026 (which concluded on December 31), the Redmond giant delivered $81.3 billion in total revenue — exceeding its projected range of $79.5–$80.6 billion. This represented 17% year-over-year expansion. Full-year earnings per share projections show anticipated growth of 21%, reaching $16.48.
Azure Drives Exceptional Momentum
The headline performance came from Azure, the company’s cloud computing division, which expanded by 39%. Management indicated that expansion would have accelerated further if not for data center infrastructure limitations. To address this bottleneck, Microsoft has announced plans to invest upwards of $100 billion in capital spending throughout this fiscal period.
Such robust expansion doesn’t characterize a business facing disruption — rather, it signals a company positioned at the epicenter of AI infrastructure demand. Given that every AI agent and large language model requires cloud infrastructure to operate, Azure stands to benefit regardless of AI’s ultimate impact on traditional software revenues.
The Intelligent Cloud division is projected to surpass the legacy software business as Microsoft’s primary revenue generator.
The OpenAI Investment Wildcard
Another critical element is OpenAI. Microsoft has pledged $13 billion to the artificial intelligence startup across multiple years, predominantly structured as Azure computing credits. OpenAI’s most recent funding round established an $840 billion company valuation. While Microsoft’s ownership percentage has been diluted through subsequent rounds, Wall Street analysts calculate the stake’s current worth potentially exceeds $200 billion.
Should OpenAI maintain its dominance in the AI sector, Microsoft would remain its principal shareholder.
The “software apocalypse” theory recently suffered a setback when Anthropic, considered a major competitor in AI agent development, delivered a corporate presentation demonstrating agents functioning in tandem with applications like Excel and PowerPoint — rather than making them obsolete. Following this revelation, the iShares software ETF rebounded somewhat, and MSFT climbed 5% in subsequent trading sessions.
Microsoft 365 Copilot, the company’s $30 monthly AI productivity tool, has attracted 15 million paid subscribers — representing 3% of the total user base. While adoption appears gradual, this pattern mirrors Microsoft’s historical product rollout strategy. The company was similarly late entering cloud computing before ultimately becoming the second-largest provider after AWS.
The current forward P/E ratio of approximately 22x places Microsoft’s valuation below household names like Coca-Cola, Home Depot, and Colgate-Palmolive. When MSFT last traded at comparable multiples in January 2023, shares subsequently surged 73% over the following twelve months.
RBC analyst Rishi Jaluria has characterized the stock as “very undervalued,” pointing to Microsoft’s commanding presence across Azure, cybersecurity, data platforms, LinkedIn, and gaming. Melius Research analyst Ben Reitzes recently moved to a Neutral rating but conceded that much bearish sentiment appears already reflected in current pricing.
Microsoft’s Productivity & Business Processes division — encompassing Microsoft 365, additional enterprise software, and LinkedIn — produced $67 billion in revenue during the first half of fiscal 2026, expanding 16%.
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