Key Points
Microsoft (NASDAQ: MSFT) has been an up-and-down investment in 2026. So far, it’s basically flat for the year, teetering between a winning and losing investment from day to day. However, considering that the S&P 500 (SNPINDEX: ^GSPC) has returned more than 10% this year, that makes Microsoft a disappointing investment.
But if you scooped up shares during one of Microsoft’s low points, like in April or at the end of June, you’re a happy investor. If you bought Microsoft stock on the last day of June, you’re up 30% on your investment. That’s a stark contrast from where investors entered the year, but could it be a smart investment moving forward?
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One long-term-minded hedge fund manager is Bill Ackman, who runs Pershing Square Capital Management. His firm increased its Microsoft stake by nearly 10% in the quarter and now holds it as its third-largest position, accounting for nearly 12% of the fund’s portfolio. That’s a huge vote of confidence in Microsoft, but that information was as of the end of the second quarter on June 30. It has clearly risen a lot since then, so is it still a smart buy?
Image source: Getty Images.
Microsoft was on sale; now it’s not
Microsoft reported earnings in late July, and its results were well received, causing the stock to skyrocket. The company’s earnings were strong, with it reporting 18% revenue and operating income growth, and the all-important Azure cloud computing segment reporting 43% revenue growth.
What most excited the market was Microsoft not increasing its data center spending guidance for the year, unlike many other AI hyperscalers during their recent earnings announcement calls. This caused the stock to skyrocket and eliminated the bargain that was once present.
MSFT PE Ratio (Forward) data by YCharts
Prior to reporting earnings, Microsoft traded for a tantalizing price tag — less than 20 times forward earnings. Now, it trades for about 25 times forward earnings, which is still far cheaper than the 30 times forward earnings it traded at for a long time.
If Microsoft can rise to 30 times forward earnings again, it will be well worth an investment at these prices. However, that seems like a bit too high a price to pay for a stock growing at less than a 20% year-over-year pace.
I think the current price is a fair one for Microsoft stock, making it a viable investment. However, several other AI stocks are trading at bargain prices right now, and I think those are the ones most investors should check into. Microsoft is still a solid stock to hold onto, but I don’t consider Microsoft one of the best stocks to buy now.
Should you buy stock in Microsoft right now?
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Keithen Drury has positions in Microsoft. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
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