Microsoft shares have fallen even as its cloud and AI numbers keep climbing, leaving the stock at a mid-20s earnings multiple. The bull case rests on a $627 billion contracted backlog; the bear case rests on a $190 billion capex bill.
Microsoft's stock keeps getting cheaper while the business behind it keeps getting bigger. Shares closed at $384.36 on Thursday, down 20.17% year to date and 23.05% over the past twelve months, yet the fundamentals moved the other way.
The numbers ran the opposite direction to the ticker
Third-quarter FY26 revenue landed at $82.89 billion, up 18.3% year over year. EPS came in at $4.27 for a fourth straight beat, and Azure grew 40%. On the earnings call, CEO Satya Nadella told investors: "Our AI business surpassed $37 billion ARR, up 123%."
The backlog tells the same story. Commercial remaining performance obligations reached $627 billion, up 99% year over year — contracted future revenue that nearly doubled in twelve months. Paid Copilot seats crossed 20 million, up 250% year over year.
A top performer priced in the middle of the pack
The valuation is where the disconnect shows. Microsoft carries a trailing P/E of 23 and a forward P/E of 20, trading well below its 200-day moving average of $443.59. Trefis puts its LTM revenue growth at 17.9%, ahead of Apple's 12.8% and Amazon's 14.2%.
Despite that operational lead, the market assigns Microsoft a price-to-earnings multiple of 22.8, a discount to Apple's 37.9. Microsoft Cloud revenue exceeded $54 billion last quarter, up 29% year over year.
The $190 billion question
The discount reflects the cost of that growth. Microsoft guided to roughly $190 billion in calendar 2026 capex, and investors are weighing whether AI monetization can justify the outlay. CFO Amy Hood addressed the concern, saying the company remains confident in the return on those investments given higher demand signals.
For now, the Street leans one way: 54 buy ratings against three holds and zero sells.
Sources: 24/7 Wall St., Trefis
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