Microsoft seen as undervalued despite strong Q3 growth and rising AI revenue, market fixates on CapEx concerns.

Microsoft is currently trading at less than 20 times forward earnings, which many see as undervalued given its strong operational performance and a $627 billion contracted backlog. In its Q3 report, Microsoft beat expectations on both revenue and profit, with Azure cloud services growing 40% year-over-year and operating income increasing 20%. The market's focus on a $190 billion capital expenditure (CapEx) guide is considered overstated, as $25 billion of that is due to component inflation and most spending supports revenue growth. Additionally, Microsoft's AI monetization is accelerating, highlighted by a 250% year-over-year increase in M365 Copilot seats and a 99% rise in commercial remaining performance obligations, signaling strong future revenue potential. Despite these positives, Microsoft’s stock has lagged behind the broader market, falling 14.45% since early 2026, reflecting investor uncertainty mainly around CapEx.