This Tech Stock Is Trading Below Where It Was a Year Ago -- but Its Business Has Never Been Stronger

Tech stocks have been winners in the stock market for several quarters -- despite a dip at the beginning of the year -- and many of the biggest names continue to soar.

Chipmaker Nvidia is up by 65% over the last 12 months, while Alphabet is up a whopping 131%. Fellow "Magnificent Seven" members Amazon (up 28%) and Apple (up 43%) are also doing well.

But there's a notable outlier -- Microsoft (NASDAQ: MSFT), known for its lucrative businesses in operating systems, software, and cloud services, is actually trading 9% lower than it did a year ago.

However, despite its recent failure to catch the tailwinds that have lifted its brethren, I think that the bull thesis for Microsoft persists, and that the company's business is stronger than ever. If you're looking for a great company that's on sale, Microsoft may be an ideal stock to buy right now.

A look at Microsoft stock

Microsoft is perhaps best known for its popular suite of enterprise software tools, including Word, PowerPoint, Excel, Outlook, and OneNote. The applications, which are part of the Microsoft 365 package, are invaluable for word processing, spreadsheets, email, and formal presentations. More than 3.7 million companies use Microsoft 365, including more than 1 million in the U.S. alone.

Many of those customers are shifting to work in Microsoft's cloud environment. In its fiscal 2026 third quarter (which ended March 31), Microsoft reported 19% growth in 365 Commercial Cloud revenue and more than 20 million paid seats. The number of seats grew by 6% year over year. Meanwhile, 365 Commercial products revenue grew just 1% year over year as customers continued to shift to the cloud.

The commercial segment is a core part of Microsoft's growth strategy, with the company seeing strong growth in commercial cloud, LinkedIn, and its Dynamics 365 suite of intelligent business applications, which includes customer relationship management tools.

Source: Microsoft. YOY = year over year.

Overall, Microsoft's revenue for the most recently reported quarter was $82.9 billion, up 18% year over year. Operating income was $38.4 billion, up 20%, and earnings per share rose 23% to $4.27.

While all that is great, though, what I'm most interested in when it comes to Microsoft is the performance of its cloud computing segment.

The cloud is Microsoft's biggest opportunity -- and a temporary pain point

Undoubtedly, Microsoft 365 comprises an impressive suite of tools. But its growth pales in comparison to the growth of its intelligent cloud unit.

Source: Microsoft. YOY = year over year.

The first unit, productivity and business services, includes Microsoft 365 and LinkedIn, while the more personal computing unit includes the Windows operating system, its Bing search engine, Surface devices, and Xbox gaming consoles.

But the fastest-growing segment is intelligent cloud, which includes Microsoft Azure and cloud services. That division grew by 30% over the last year, and its revenue now almost equals that of the business segment that includes Microsoft 365. Azure is the No. 2 cloud infrastructure provider in the world by market share, with 21%, behind only Amazon Web Services (28%). Grand View Research projects that the cloud computing market will grow from $943.7 billion in 2025 to nearly $3.4 trillion by 2033, for a compound annual growth rate of 16%.

Image source: The Motley Fool.

While that offers Microsoft a massive opportunity, taking advantage of it will require tremendous investment. Microsoft plans to spend $190 billion this year alone on AI infrastructure, with much of that going toward the purchase of graphics processing units (GPUs) and central processing units (CPUs) to run AI workloads. And Microsoft was forced to increase its capital expenditure budget by $25 billion for the year due to rising component costs, further cutting into the company's profitability.

Microsoft spent $31.9 billion in the most recent quarter on capex, and expects that to increase to $40 billion in this quarter.

Why Microsoft is a buy

Wall Street remains exceptionally bullish on Microsoft: According to Yahoo! Finance, 55 of 58 of the analysts following the company have buy ratings on the stock. Their consensus price target of $560 suggests a potential upside of 33%.

But while investors seem hesitant to buy Microsoft stock, I think it continues to have a strong growth story -- and that its investments in AI will be critical to supporting the growing demand for cloud computing capacity.

That's why if you're looking for a bargain-priced tech stock right now, Microsoft is a great one to consider.

Patrick Sanders has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.