Is Microsoft’s (MSFT) AI Spending Finally Paying Off? Fahad Saleem Wed, October 7, 2026 at 2:44 PM EDT 3 min read MSFT +0.02% Trade MSFT on Coinbase Trading disclosure Trading disclosure The above button links to Coinbase. Yahoo Finance is not a broker-dealer or investment adviser and does not offer securities or cryptocurrencies for sale or facilitate trading. Coinbase pays us for certain activity generated through this link. Prices displayed are informational.
Microsoft (NASDAQ:MSFT) is up about 12% so far this year, and investors are nervous about whether the stock can keep growing. The company has spent heavily on AI data centers, and many want proof that the spending turns into sales. Ken Fisher's Fisher Asset Management is one of Microsoft's largest hedge fund holders, with a stake worth about $9.9 billion, or 2.96% of its portfolio, after raising it by 3% in the second quarter. Microsoft ranks fourth in our list of his 10 best AI stocks. Click here to see the other nine picks.
Bulls say the proof is already in the numbers. Azure, the cloud unit, grew 43% in the latest quarter, up from 39% in the quarter before. Customers want more AI cloud computing power than Microsoft can supply, and management said the new capacity it added was used almost right away. Wondering if Azure's growth can cover the capex bill? Read our look at how Microsoft can balance AI growth with capex risk. The backlog of signed cloud work grew 84% from a year earlier, so demand looks locked in for the next few years. Management expects double-digit revenue growth in fiscal 2027, with cloud growth speeding up through the year, and it expects costs to grow much more slowly than revenue.
The older software business is holding up too. Office and Microsoft 365 seats grew 6%, and consumer Microsoft 365 revenue grew 22%. New signed business, which had weakened a quarter earlier, returned to growth.
Bears worry that the AI spending takes longer to pay off than investors want to wait. The stock is roughly where it was a year ago, and Meta's new AI model drew more cheers than anything Microsoft has shown. See which AI cloud stock turns capex into profit better, Microsoft or Amazon.
The software business also faces a threat. If AI agents take over office work, companies need fewer employee seats, and this year's layoffs could cut subscriptions next year. Microsoft itself expects seat growth to slow over time, and signed business has been uneven before, so the latest rebound may not last. Worried that AI will eat into Microsoft's software? Read our earlier look at whether the stock can rebound.
Microsoft also depends on OpenAI as both an investor and a customer, so a setback there would hit Microsoft. Growing calls for AI safety rules could slow the big AI labs, which would reduce demand for Microsoft's computing power. That is the risk for investors in Microsoft (NASDAQ:MSFT).
Microsoft (NASDAQ:MSFT) trades at a forward P/E of 26.6, which is 13% below its own five-year average of 30.5 and about 12% above the sector median of 23.8. The stock costs less than usual while the business grows faster than usual, with revenue growth of 18.4% against a five-year average of 14.2% and earnings per share growth of 20.0% against 15.5%. Want more AI ideas? See our list of the 10 best AI stocks to buy before they explode. Analysts expect earnings per share to rise 14.4% in fiscal 2027 and 19.8% in fiscal 2028, which puts the P/E at about 22 on fiscal 2028 earnings. The forward PEG ratio, which compares the P/E to growth, is 1.65, well below its five-year average of 2.28 but above the sector's 1.29. Analysts keep raising their estimates, and Microsoft beat earnings estimates in each of the last four quarters. Microsoft (NASDAQ:MSFT) looks fairly valued, with a slight lean toward cheap against its own history.
While we acknowledge the risk and potential of MSFT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MSFT and that has 10,000% upside potential, check out our report about the cheapest AI stock.
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