Microsoft: Falling Knife or Once-in-a-Decade Buying Opportunity?

Artificial intelligence (AI) stocks have slipped in recent days, and there may be various reasons behind this. Broadcom led the movement as the company's chip sales forecast disappointed some investors, putting pressure on a wide range of AI stocks. Meanwhile, certain investors may be rotating out of today's major AI players in order to invest in SpaceX after its initial public offering or setting aside funds to invest in the upcoming IPOs of Anthropic and OpenAI.

All of this has weighed on some of the biggest tech players, including Microsoft (NASDAQ: MSFT). The software giant's stock slipped 15% since the start of the month through June 11. Is Microsoft a falling knife -- or is it offering us a once-in-a-decade buying opportunity at today's level? Let's find out.

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A confirmed tech giant

First, let's catch up on the Microsoft story so far. The company long ago confirmed its position as a tech giant, with a range of revenue streams including its leading software platform, its cloud computing business, and its strengths in gaming via the Xbox business. In fact, in recent years, its growing market value has made it the world's biggest company at certain moments.

Nvidia, at more than $4 trillion, has since claimed that title, but Microsoft remains a behemoth, with a market value of $2.9 trillion.

Microsoft also has seen significant growth thanks to its presence in AI. The company offers customers access to a wide variety of products and services through its cloud business. In the recent quarter, Microsoft Azure and other cloud revenue climbed 40% year over year. The AI business surpassed an annual revenue run rate of $37 billion for a gain of 123%.

And right now, Microsoft may have a fantastic revenue growth opportunity just ahead. As agentic AI -- the actual use of AI to take problem-solving actions -- becomes the focus, we'll need quality agents and the cloud infrastructure to support them. Microsoft is taking action in both areas. The company is building out its infrastructure, and at the same time, it's building out agentic AI systems in areas including productivity, coding, and more.

Microsoft already is seeing considerable use of its agentic AI offerings -- almost 90% of the Fortune 500 have used Microsoft's low- or no-code tools to build agents. And "tens of thousands of companies" manage "tens of millions of agents" through Microsoft's Agent 365 platform.

As we move further into this agentic AI growth era, Microsoft should continue to see momentum here.

What's weighed on Microsoft stock

All of this is positive, but one element, beyond the headwinds I mentioned above, has also weighed on Microsoft stock this year. Some investors have worried that the increase in the capabilities of AI could replace certain software. It's true that this could happen, but I don't think it's a concern for Microsoft's platforms. For two reasons. First, corporate customers, for example, have deeply integrated Microsoft's software within their operations. It could be costly, time-consuming, and risky to unwind all of that in favor of one or more AI tools.

Second, Microsoft actually is harnessing the power of AI to make its software better, and you, as a user, can take advantage of Copilot across Microsoft applications. So the growth of AI will actually benefit Microsoft's software and the user experience. And, as I mentioned above, the company also may be one of the big winners as commercial customers flock to its cloud services arm for their AI projects.

Now, let's return to our question: Is Microsoft a falling knife or a once-in-a-decade buying opportunity? It's impossible to predict short-term stock performance, and if investors continue to shift out of well-established AI stocks or opt for caution, Microsoft shares may not immediately rebound. But I don't consider Microsoft a falling knife.

Microsoft offers investors solid businesses that are generating overall growth, and the company is well-positioned to benefit from the next chapters of the AI story. So there's reason to be very optimistic about the long-term picture. Today, the stock trades at the dirt cheap level of 23x forward earnings estimates, which could attract investors. So I see this top tech stock as more of a once-in-a-decade buying opportunity than a risky buy right now.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.