MSFT at $422: Down 13% YTD, Yet AI Backlog Hits $627B: Cheapest Megacap in Tech?

Quick overview

Microsoft is spending like it’s 1999, growing like it’s 2024, and the market hasn’t figured out which story to believe yet.

Why MSFT Has Underperformed

The stock has fallen roughly 9.6% over the past year. Alphabet has surged. Amazon is up 28%. Microsoft? Sideways — and then some.

The culprit is capital expenditure. Microsoft plans to spend nearly $190 billion on capex in 2026, including $25 billion to address rising component costs. That’s a serious hit to near-term margins.

Supply constraints in AI infrastructure have compounded the problem. Management expects these bottlenecks to persist through at least 2026 — limiting Azure’s ability to meet demand that is genuinely there.

In short: the spending is real, the growth is real, but the market is impatient.

Microsoft’s Fundamental Case: What the Bears Are Missing

Strip away the noise, and the business fundamentals look remarkably strong.

Latest Quarter Highlights

• Total Revenue: $82.9B (+18% YoY)
• Microsoft Cloud Revenue: $54.5B (+29%)
• Azure & Cloud Services: +40% YoY (constant currency)
• AI Revenue Run Rate: $37B annually (+123% YoY)
• Copilot Paid Seats: 20 million+ (+250% YoY)
• Enterprises with 50,000+ Copilot seats: 4x increase
• Commercial RPO (backlog): $627B (+99%)
• Longer-duration commitments: +138%

That backlog number is stunning. Roughly a quarter of the $627 billion — around $156 billion — converts into revenue over the next 12 months. Customers are not pulling back. They are locking in multi-year AI and cloud commitments.

Microsoft’s AI business alone is now generating more annual revenue than most Fortune 500 companies.

MSFT Stock Valuation: The Cheapest AI Megacap?

This is where the bull case gets genuinely compelling.

Microsoft trades at a forward P/E of 24.3x — below Alphabet’s 27.1x, and far cheaper than Amazon’s 34.5x. For a company growing cloud revenue at 29% and AI revenue at 123%, that seems like a disconnect.

A DCF analysis using a two-stage free cash flow model puts Microsoft’s intrinsic value at $570.40 per share — a 26% discount to the current price of ~$422. The latest twelve-month free cash flow stands at $93.7 billion. Analysts project that rising to $181.1 billion by 2030.

Simply Wall St assigns Microsoft a perfect valuation score of 6/6.

The market appears to be pricing in continued margin pressure. The model suggests it isn’t pricing in what happens when supply constraints ease.

Gates Foundation Exit: What It Really Means

Markets reacted with concern when news broke that the Bill & Melinda Gates Foundation fully exited Microsoft — selling its final 7.7 million shares, worth roughly $3.2 billion, in Q1 2026.

But context matters. The foundation’s exit has nothing to do with Microsoft’s business outlook.

• At its peak in 2022, Microsoft represented 27% of the foundation’s portfolio
• Gates announced last year the foundation would spend down its entire endowment by 2045
• The sharpest reduction happened in Q3 2025, when the trust sold ~65% of its position
• The foundation plans to distribute ~$9 billion in grants in 2026 alone

This is philanthropic portfolio management — not a vote of no-confidence in the company. The remaining portfolio stands at approximately $31.7 billion.

MSFT Technical Analysis: Where the Chart Stands

The chart tells a story of recovery from oversold territory — but the jury is still out on whether this is a trend reversal or a dead-cat bounce.

Key Levels to Watch

• Support: ~$360 (strong floor established in early 2026 selloff)
• Resistance: ~$416 (recent breakout zone, now being tested as support)
• 200-day Moving Average: ~$407–471 (data varies by source, reflecting the depth of the YTD decline)
• 50-day MA: ~$392–412 (price is now trading above this level — a constructive sign)

Technical Indicators

• RSI: Readings range from ~54 to 62 depending on the timeframe — broadly neutral, with no overbought/oversold extreme
• MACD: Mixed signals across timeframes; the MACD line has moved above the signal line on shorter timeframes, suggesting emerging bullish momentum
• Bollinger Bands: Price is pressing against the upper band on the 25-day measure ($427), which flags near-term resistance
• Williams %R: Near overbought territory in the short run — potential for a brief consolidation

Likely Scenarios for Microsoft Stock

• Bullish case: The stock holds above $416 support and the 50-day MA. Azure acceleration news or further Copilot adoption data triggers renewed institutional buying. The path toward $450–$480 opens.
• Base case: MSFT consolidates in the $400–$430 range through summer as investors wait for clarity on AI infrastructure capacity. Gradual drift upward as supply constraints ease.
• Bearish case: A broader tech selloff or macro shock pushes the stock back toward $360–$380 support. Any guidance cut on Azure growth would be severely punished by the market.

Smart Money Is Watching: MSFT Gets Positive Ratings From Analysts

Wall Street hasn’t given up. Analysts broadly rate MSFT a Strong Buy.

Billionaire investor Bill Ackman’s Pershing Square Capital Management initiated a fresh position in Microsoft — citing attractive valuation as the primary thesis. That’s not a casual move. Ackman runs a concentrated portfolio, and Microsoft made the cut.

Microsoft’s Long-Term Picture

Over 5 years, MSFT is still up around 72%. Over 10 years, it’s up 715%. The long-run compounding machine is intact.

Management is clear: the current constraints are temporary, not structural. If AI infrastructure capacity comes online in the second half of 2026 — as projected — Azure growth could meaningfully reaccelerate.

When that happens, today’s $190 billion capex splurge may look less like a margin killer and more like the foundation of Microsoft’s next growth era.

The market is pricing in the pain. It may not be pricing in what comes after.

Bottom Line: How to Trade Microsoft Stock

Microsoft is in an uncomfortable but familiar position: spending heavily today for dominance tomorrow.

• Fundamentals are intact and accelerating
• Valuation is the cheapest among AI megacaps
• DCF suggests 26% upside to fair value
• The technical picture is recovering, with key support holding
• The Gates Foundation exit is a distraction, not a data point

The stock is down. The business is not.

For investors with a 12–24 month horizon, that gap is worth paying attention to.

ABOUT THE AUTHOR See More

Arslan Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.