Microsoft (MSFT 3.19%) stands at the forefront of the rise in artificial intelligence (AI) as a transformative force in the global economy.
The tech giant was a pioneer in the field and an early investor in OpenAI, the group behind the chatbot ChatGPT. That partnership paid off big, allowing Microsoft to quickly integrate AI tools across its product and services ecosystem and capitalize on strong demand for AI solutions as a major growth driver. Despite these developments, the stock has been under pressure this year, down about 17% from its 52-week high amid some jitters in the stock market.
Here are four reasons why now may be a great time to buy shares of this beaten-down AI leader.
1. Microsoft’s AI leadership
With decades of groundbreaking innovation, Microsoft has called artificial intelligence the defining technology of our time. AI’s ability to automate complex workflows and deliver actionable insights is proving to be a game changer for how businesses operate while enhancing individual creativity. By this measure, few companies are as well positioned to capitalize on the AI revolution as Microsoft, given its extensive and diversified product offerings.
Starting with the Windows operating system and Office suite, Microsoft is leveraging large language models (LLMs) and machine learning to integrate powerful AI capabilities within familiar tools like Outlook, Word, Excel, and Teams. AI has also been a game changer for the company’s Azure segment, empowering enterprise customers with cloud-based solutions to build, train, and deploy custom AI models.
This combination of AI-enhanced productivity tools and cloud computing helps make the case that Microsoft’s growth opportunity is as strong as ever. Investors confident the company can build on its AI leadership have plenty of reasons to buy and hold the stock for the long run.
Image source: Getty Images.
2. Capitalizing on the data center boom
In Microsoft’s fiscal second quarter (for the period ended Dec. 31), revenue climbed by a solid 12% year over year, alongside a 10% increase in earnings per share (EPS). Perhaps the biggest story has been the momentum precisely from the AI business, including a 21% increase in revenue from server products and cloud services.
The growth has been tied to an industrywide data center development boom, where Azure’s infrastructure is the backbone of AI workloads from enterprise customers looking to deploy and scale AI strategies. Microsoft is investing heavily to support this demand, in which the latest generation of high-performance Nvidia GPUs require AI-optimized facilities with increasingly advanced features.
In this case, Microsoft Azure plays a critical role in the AI value chain, which may still be in the early stages of a decade-long expansion.
3. A strong growth outlook
According to Wall Street analysts tracked by Yahoo! Finance, Microsoft is forecast to achieve a revenue increase of 13.1% for 2025, followed by a 14% pace in 2026 — impressive figures for a company on track to generate more than $300 billion in revenue by next year. The EPS estimates are also robust, expected to reach a record $13.16 this year, up 11.5% from 2024.
The bullish case for the stock is that the company can ultimately outperform these targets, particularly in a resilient economic environment.
| Metric | 2025 Estimate | 2026 Estimate |
|---|---|---|
| Revenue | $277 billion | $316 billion |
| Revenue growth (YOY) | 13.1% | 14% |
| EPS | $13.16 | $15.07 |
| EPS growth (YOY) | 11.5% | 14.5% |
Data source: YOY = year over year.
4. Compelling valuation
What I like most about Microsoft right now as a possible investment is the sense that the recent dip has helped bring down the stock’s valuation premium to a more attractive level.
Shares are trading under 30 times the consensus 2025 EPS as a forward price-to-earnings (P/E) ratio, notably well below the five-year average for the earnings multiple closer to 34, suggesting the stock may be undervalued. If the company continues to deliver strong quarterly results, reaffirming the AI growth story, I predict the stock will reclaim its previous record-high price.
MSFT PE Ratio (Forward) data by YCharts
The big picture for investors
Microsoft remains one of the best stocks investors can buy to gain exposure to the high-level themes in the AI revolution. Recognizing some room for near-term volatility as a reality of the stock market, I believe investors adding Microsoft shares to a diversified portfolio today stand to be rewarded over the long run.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
