Microsoft's AI-Driven Valuation Test: Bulls vs Bears

Microsoft's (MSFT) recent Q4 results beat expectations, and the company plans to spend around US$175 billion in 2026 on cloud and AI infrastructure. This has led to a valuation test for the stock, with some investors questioning whether it is overvalued at its current price.

The stock has seen a small pullback lately but still boasts a 16.1% return over the past 90 days and a 52.7% three-year total shareholder return. However, this momentum contrasts with a slightly negative one-year total shareholder return as investors weigh the benefits of Microsoft's AI-heavy capex plan against potential regulatory and execution risks.

Bulls argue that Microsoft's AI capex and cloud backlog justify its current valuation, while bears focus on the drag from US$175 billion in 2026 spend. To assess which side is correct, we can examine the stock's multiples: at around $380, it trades at roughly 22-23 times trailing earnings and ~14 times EV/EBITDA, below its own seven-year historical range.

Some analysts, such as CubanEros, believe that Microsoft's fair value hinges on stronger margins, solid profit growth, and a premium earnings multiple. According to their calculations, the fair value of MSFT is $419.91, but this is based on certain assumptions that may not materialize.