The “Magnificent Seven” began 2026 in a hole. Every member slid in the year’s first few months as investors started questioning how much they had been paying for promises tied to artificial intelligence (AI). Since then, however, most of the group has climbed back. As of this writing, the seven are collectively higher on the year, the S&P 500 is up more than 8%, and Alphabet has jumped more than 20%.
But one name has been left out of the rebound. Microsoft(NASDAQ: MSFT) is down about 13% so far in 2026, the worst showing in the group. Even Tesla, which had been vying with Microsoft for last place earlier in the year, has since pulled ahead — as have chipmaker Nvidia, fresh off another strong quarter, and iPhone maker Apple.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
What makes the gap unusual is that the business itself hasn’t stumbled. So, with the stock sitting at the back of the pack, is the software and cloud giant’s stock finally worth buying?
Image source: Getty Images.
A business that keeps speeding up
Microsoft’s fiscal third quarter of 2026 (the period ended March 31, 2026) didn’t look like a company in trouble. Revenue rose 18% year over year to $82.9 billion — an acceleration from 17% growth the prior quarter, and operating income climbed 20% to $38.4 billion. Further, the software giant’s non-GAAP (adjusted) earnings per share rose about 21%.
Even more, Microsoft said its AI products now carry an annual revenue run rate of more than $37 billion — up 123% from a year earlier. Behind it is everything from outside developers building on Azure, the company’s cloud computing business, to Microsoft’s own Copilot assistant, which crossed 20 million paid seats after adding 5 million in a single quarter.
Management also signaled a change in how it plans to charge for all of this.
“Any per-user business of ours, whether it’s productivity, coding, security, will become a per-user and usage business,” CEO Satya Nadella said during the company’s fiscal third-quarter earnings call. In plain terms, Microsoft wants to keep collecting its familiar per-seat fees while adding charges based on how much customers actually lean on its AI tools — a model it’s already rolling out, starting with usage-based pricing for its GitHub coding assistant.
And don’t forget that Microsoft has a roughly 27% stake in OpenAI and a non-exclusive license to its technology through 2032.
A discount that comes with strings
Further, after the stock’s slide, Microsoft trades at a forward price-to-earnings ratio of about 22 as of this writing — among the lowest in the “Magnificent Seven.”
It also offers the group’s most generous dividend yield, though it’s still modest at 0.9%.
For a business compounding at these rates, this doesn’t look like a demanding price.
The catch is what the growth now costs. Microsoft expects to spend roughly $190 billion on capital expenditures in calendar 2026, up about 61% from the prior year, as it races to build data centers.
That spending is starting to show.
Microsoft’s gross margin in its fiscal third quarter was down year over year as depreciation from those data centers piled up, and management expects to stay capacity-constrained at least through 2026. Additionally, if demand for AI computing cools before the build-out pays off, the margin pressure could worsen before it improves.
And the OpenAI relationship cuts both ways. A single partner still anchors a large share of Microsoft’s contracted commercial work. But that means the company’s backlog could suffer if OpenAI’s business unexpectedly declines or if the AI company shifts more of its future business to other cloud providers.
Even so, the discount may be doing too much work. Microsoft is among the cheapest members of the group, yet it’s growing faster than it was a year ago, with a credible path to charging more as AI usage climbs. The heavy spending, of course, is a risk worth watching. And investors who can’t stomach a long, costly build-out may prefer to wait for clearer evidence that it’s paying off. But for those willing to look past a year of underperformance, the market’s least-loved “Magnificent Seven” stock could finally be worth a fresh look, but ideally only as a small position given the high risks of the company’s costly AI build-out.
Should you buy stock in Microsoft right now?
Before you buy stock in Microsoft, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Microsoft wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $477,813!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,320,088!*
Now, it’s worth noting Stock Advisor’s total average return is 986% — a market-crushing outperformance compared to 208% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
Daniel Sparks and his clients have positions in Apple. Daniel has clients with positions in Tesla. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, Nvidia, and Tesla. The Motley Fool has a disclosure policy.
