Microsoft Valuation Hits Attractive Levels Amid AI Infrastructure Pivot

Microsoft (MSFT) has seen its valuation dip to multi-year lows following a broader market rotation away from the technology sector in early 2026. The Nasdaq Composite entered correction territory in the first quarter, dragging the software giant's share price to a 52-week low of $356.28 on March 30. The primary driver of investor anxiety has been a sharp increase in capital expenditures. In its fiscal second quarter ending December 31, Microsoft reported capex of $37.5 billion, representing a 66% year-over-year surge. This spending is largely dedicated to upgrading cloud infrastructure to support the compute-intensive demands of generative AI systems. Financial performance remains robust despite the spending spree. Fiscal Q2 revenue reached $81.3 billion, a 17% increase, while the cloud division grew 29% to $32.9 billion. Net income saw a substantial jump of 60%, totaling $38.5 billion, with gross margins rising 16% year-over-year. Morningstar currently estimates Microsoft's fair value at $600, suggesting the stock is approximately 38% undervalued. While the company's heavy reliance on OpenAI—which accounts for 45% of its remaining performance obligations—presents a concentration risk, the rapid growth of the AI market, projected to reach $1.3 trillion by 2032, provides a significant long-term tailwind for the company.