Claude Was Right About Microsoft (MSFT): Can The Stock Keep Rising? Fahad Saleem Tue, October 13, 2026 at 9:31 AM EDT 3 min read MSFT +1.47% 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 Corporation (NASDAQ:MSFT) is in the news after the company unveiled Maia 300, its third-generation AI chip, which it says will become the main system for running AI across its products from 2027. The stock was a surprising topper in our list of the 8 best-performing stock picks by Claude AI. The stock is up about 40% over the past six months, and many investors now wonder whether the rally has more room to run.
Bull Case: Microsoft Already Sits Inside Most Big Companies
Microsoft can sell new AI tools faster than most rivals because its software already runs inside almost every large company, so customers skip the long process of approving a new vendor. Azure revenue grew 43% in the fiscal 2026 fourth quarter, and Microsoft's commercial backlog rose 84%, or 25% excluding OpenAI. Microsoft 365 Copilot passed 30 million paid seats. The company also works with several AI labs. It lets customers pick from many models and has invested in Anthropic, the maker of Claude. Claude AI has been picking stocks too, and you can see its September portfolio picks here.
Bear Case: Chips, Software Risk and Heavy Spending
Azure relies on Nvidia chips, and Microsoft's own Maia chips are not in production yet, with the Maia 300 due in 2027. Google and Amazon already run their own chips, so each dollar they spend on data centers buys more computing power than Microsoft's. Google Cloud grew 82% last quarter, against 43% for Azure. Google is Microsoft's toughest rival here, and you can see why investors still like Alphabet despite AI search worries.
Most of Microsoft's revenue and profit still come from software sold per user, and that business is at risk if AI companies like OpenAI and Anthropic keep improving their own products. Microsoft has not shown how often customers use Copilot each day, and its capital spending keeps rising every quarter. Much of the backlog growth comes from OpenAI, which adds counterparty risk. Fears like these have already hit software stocks. Intuit is down about 56% this year, and billionaire funds are buying it anyway.
Valuation: A Premium That Needs Growth
Microsoft trades at about 27 times forward earnings. That is 18.33% above the sector median of 22.87 and 11.26% below its own five-year average of 30.50. Revenue grew 17.79% year over year, and analysts expect earnings per share to grow about 14% in fiscal 2027 and about 20% in fiscal 2028. The forward PEG ratio is 1.72, against a sector median of 1.25 and a five-year average of 2.28. Microsoft has beaten earnings estimates in each of the last four quarters. Analyst consensus rates the stock a Strong Buy, while quant scoring rates it a hold. Amazon is another big cloud rival whose valuation investors are debating, and this article looks at its AI case.
The price leaves little room for a miss. If earnings growth fell to half of what analysts expect, the PEG would roughly double and sit well above its five-year average. Microsoft guided for Azure growth of 44% to 45% in the fiscal 2027 first quarter, and it reports results on October 28. The stock can keep rising if Azure lands in that range and Copilot use deepens. Microsoft Corporation (NASDAQ:MSFT) needs both to justify a premium multiple.
While we acknowledge the potential of MSFT as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.
READ NEXT: 33 Stocks That Should Double in 3 Years and Cathie Wood 2026 Portfolio: 10 Best Stocks to Buy
Disclosure: None. Follow Insider Monkey on Google News.
