Microsoft's AI Surge Sparks Undervaluation Debate
Microsoft has rallied significantly after its recent earnings report, but is it still undervalued? The company's AI business is growing rapidly and gaining market share, with cloud revenue surging by 27% year-over-year in its fiscal 2026 fourth quarter. This growth can support double-digit revenue growth rates throughout fiscal 2027.
The stock still trades at a lower P/E ratio than the S&P 500 despite growing faster than most stocks in the index. Microsoft's AI efforts have been paying off, with the company attracting more customers across its product lines while being deeply integrated with innovative technology. Other business segments such as LinkedIn, search advertising, and Microsoft 365 Consumer revenue also had double-digit year-over-year growth rates.
The main laggard was Xbox sales, but that was a small slice of total earnings. Despite the recent rally, the stock still looks undervalued, with shares down almost 30% from their 52-week high heading into earnings and now on its way up again.