How to view Microsoft’s (MSFT) valuation as AI grows rapidly and capital spending plans rise to 2026

What the latest AI surge means for Microsoft (MSFT) stock

Microsoft (MSFT) had another strong quarter with AI-related revenue up more than 120% and a commercial backlog of $627 billion thanks to Azure, but management is still aiming for double-digit growth.

At the same time, plans to increase capital spending to approximately US$190 billion in 2026 and a revised non-exclusive OpenAI agreement are forcing investors to rethink near-term cash flows, margins, and Microsoft’s competitiveness in enterprise AI.

Check out our latest analysis for Microsoft.

Microsoft stock has been volatile in 2026, with its year-to-date stock return down 12.47%. This is despite the 30-day stock price return of 11.19%. The five-year total shareholder return of 77.51% reflects stronger long-term returns.

AI leaders are spending a lot of money on data centers and chips. If you’re comparing Microsoft to other potential opportunities, you might find it helpful to scan these 38 AI Infrastructure stocks.

With AI revenue of US$37 billion, backlog of US$627 billion, and planned capital spending of approximately US$190 billion in 2026, Microsoft appears to be highly valued, but temporarily out of favor. Is this a reset that creates opportunities, or a sign that the market is already anticipating what will happen next?

Most popular story: 1.4% underrated

The narrative fair value of $420 is slightly higher than Microsoft’s closing price of $413.96, and the story behind this small difference is anything but prudent.

Microsoft is currently unearthing the foundations that make it different. Losing the AI ​​technology war with Google, we’re caught in the perfect storm of spending cash on infrastructure with no guaranteed ROI, cannibalizing seat-based revenue, and antagonizing our users with a buggy, bloatware-filled operating system. The ship is huge and will carry momentum forward for years. But if Microsoft continues to sell inferior, job-destroying AI and force users to put up with a poor Windows experience, it will eventually find its corporate fortress built on sand. As your user base moves away, you no longer need the Azure infrastructure to support them.

Read the whole story.

Fair value in this story relies on healthy margins, solid revenue growth, and a long earnings runway, despite the product risk stacking up in the background. One wonders how these moving parts justify multiple premium companies and multi-trillion dollar market caps without assuming a runaway AI economy.

Result: Fair value is $420 (approximately right)

Read the full explanation to understand what’s behind the predictions.

However, this story could break down if AI spending doesn’t translate into strong enterprise demand, or if OpenAI tensions or competing models weaken Microsoft’s AI pricing power.

Find out the key risks to this Microsoft story.

next step

Given this mix of concern and optimism regarding Microsoft, it makes sense to act quickly and test the story yourself against the underlying data. To see how the trade-offs between potential rewards and flagged risks stack up, start with five key rewards and one key warning sign.

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If Microsoft is already on your radar, don’t stop there. The next powerful opportunity could be right in front of you, and you don’t want to miss it.

This article by Simply Wall St is general in nature. We provide commentary using only unbiased methodologies, based on historical data and analyst forecasts, and articles are not intended to be financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. We aim to provide long-term, focused analysis based on fundamental data. Note that our analysis may not factor in the latest announcements or qualitative material from price-sensitive companies. Simply Wall St has no position in any stocks mentioned.

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