Is Microsoft a deep value stock?

Many investors were kicking Microsoft (NASDAQ: MSFT) on the edge. We’re down about 20% year to date as our tech partner stocks continue to rally. I State Street Technology Select Sector SPDR ETFThe 28% year-to-date rally really captures how far Microsoft has fallen in the eyes of many investors.

However, it may be too early to count Microsoft out, especially since its strong fundamentals remain intact.

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Microsoft is still gaining market share thanks to AI

Perhaps some growth investors have given up on Microsoft because it doesn’t repeat annual revenue like other top-performing AI stocks. However, it is still gaining ground on its peers thanks to AI, which has revolutionized sustainable financial growth.

Revenue rose 18% year over year in Microsoft’s fiscal 2026 third quarter. CEO Satya Nadella said the company’s AI business reached annual revenue of $37 billion, a 123% year-over-year increase. Microsoft Cloud also remained the biggest driver of growth, up 29% year over year.

Microsoft is also ahead of the curve in agent AI, with Copilot agents and AI integrated into many Microsoft products. The company’s investment in AI has directly translated into increased revenue and profits. Microsoft’s total revenue grew 23% year over year, indicating that it can expand profit margins while gaining market share.

The rating is very low

A stock’s valuation affects whether it is a good investment. Microsoft’s growth numbers wouldn’t be great if the stock carried a 100 P/E ratio. That’s a much higher valuation than some of the fastest growing companies. However, Microsoft only trades at a 23.3 P/E ratio. The company’s P/E ratio remained in the mid-30s for most of 2025.

Tech investors have been hit by impressive revenue and net income growth rates. It makes Microsoft’s numbers feel pedestrian, but that’s a straightforward setup that creates opportunities for deep value.

Grandview Research projects a 16% CAGR for the cloud computing market from now through 2033. Microsoft is exceeding that growth rate, and as the cloud continues to grow, it will continue to make up a larger percentage of Microsoft’s total business. As that happens, some of Microsoft’s underperforming segments won’t drag the company down too much, translating into higher growth numbers going forward.

Many of the “Magnificent Seven” stocks have lower P/E ratios than they did a few years ago. Microsoft is the second cheapest stock among these options, trailing only Meta Platforms‘ 20.6 P/E ratio, another stock that has been surprisingly abandoned by many investors despite strong fundamentals.

Value isn’t always seen right away, and that gives Microsoft investors an opportunity to buy shares at bargain prices before the next meeting.

Missed Nvidia in 2009? This Rare Signal Lights Up Again

In 2009, a “Double Down” signal lit up a little-known chip maker called Nvidia. If you had invested $5,000 during that time, you will be sitting on $2,758,545 today.*

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*Stock Advisor returns from 9 June 2026

Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Meta Platforms and Microsoft. The Motley Fool has a policy of disclosure.

Is Microsoft a deep value stock? was first published by The Motley Fool