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Microsoft (MSFT) trades at $413.62 with strong fundamentals despite being down 4.25% over twelve months—a buying opportunity.
Microsoft’s AI monetization layer, exemplified by $37 billion AI revenue run rate up 123%, validates the investment thesis.
The analyst who called NVIDIA in 2010 just named his top 10 stocks and Microsoft wasn't one of them. Get them here FREE.
I keep buying Microsoft (NASDAQ:MSFT), and the only thing that has changed over the last year is how often I add. The stock is down 4.25% over the past twelve months and 14.28% year to date, and that softness has been my friend. When a business this durable goes on sale while the underlying numbers keep accelerating, I treat it as a gift, not a warning.
What pulls me back to the buy button is simple. Microsoft sits at the center of how the world's largest companies actually run, and now it sits at the center of how those same companies are deploying AI. Azure, Microsoft 365, GitHub, Dynamics, LinkedIn, Copilot. Pick any Fortune 500 org chart and you will find Microsoft inside the workflow. That position has been entrenched for years. The monetization layer being built on top of it is what's new.
The most recent quarter is the cleanest argument I can make. Q3 FY26 revenue came in at $82.89 billion, up 18.3% year over year, with EPS of $4.27 against a $4.07 estimate, the fourth consecutive quarter of beating expectations. Intelligent Cloud grew 30% and Azure climbed 40%. Operating cash flow hit $46.68 billion in a single quarter. These are the numbers of a company compounding, not coasting.
The third reason is the quality of the engine generating those results. Return on equity of 33.28%, operating margins of 45.62%, and net margins of 36.15% on a debt-to-equity ratio of just 0.33. Microsoft returned $12.7 billion to shareholders in Q2 FY26, up 32% YoY, while still funding the largest infrastructure buildout in its history. Over ten years, the stock has returned 833%. That is the math of a long-term compounder.
The honest worry is capital intensity. Q3 capex hit $30.88 billion, up 84.39%, and OpenAI investment losses widened to $3.1 billion in Q1 FY26 versus $523 million a year ago.
If AI demand falls short of expectations, this spending becomes very expensive. I take that seriously. But Amy Hood explained that GPU capacity for the largest customers is "contracted for the entire useful life of the GPU," and OpenAI alone is contracted to purchase an incremental $250 billion of Azure services. The spend is sized to demand already on the books.
Barclays set a price target of $545 and keeps an Overweight rating on the shares following the fiscal Q3 report. The firm sees the shares "starting to react better again."
At $413.62, Microsoft trades at a forward P/E of 22 with a dividend yield of 0.78%, growing earnings 23.4% year over year. I am buying the most profitable software company on earth, with $627 billion in contracted future revenue, while it is cheaper than it was a year ago. As long as that combination holds, I will keep adding.
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