Microsoft Valuation Reassessed: AI Growth Justifies Current Price

For years, the author of this article has been skeptical about Microsoft's valuation, calling it priced for perfection. However, after reviewing the company's latest financials and its growth in cloud and AI, they have changed their mind. In fiscal year 2026, Microsoft's revenue climbed 18% to over $331 billion, while operating income rose 21% to more than $155 billion.

The author notes that they were most wrong about Microsoft's AI business, assuming it would be a narrative rather than a concrete growth engine. However, the company's AI revenue has crossed a $37 billion annual run rate, growing 123% year over year. Azure grew 43% year over year in fiscal Q4 2026, and CEO Satya Nadella said Microsoft's custom AI chips can deliver up to 40% better performance per watt.

The author believes that the valuation-versus-execution debate has been settled in favor of Microsoft. As of early August 2026, Microsoft trades at a trailing P/E of 28 to 28.5, which is slightly below its 10-year average. Forward P/E estimates sit around 25 based on current consensus.