Down 35% on Artificial Intelligence (AI) Panic: Why Smart Investors Are Loading Up on Microsoft Stock

Microsoft (NASDAQ: MSFT) has not been a highly valued stock by the market lately. While the majority of the market has notched new all-time highs within the past year, Microsoft has floundered. It's now 35% down from its all-time high, making it look like a potentially great stock to buy on the dip.

However, just because a stock is on sale doesn't mean that it's cheap. Let's take a look at Microsoft's stock price and see if you should consider buying its shares now.

Image source: Getty Images.

Microsoft rarely gets this cheap

Microsoft is a massive tech conglomerate best known for its business productivity software. However, its business is much broader than that, as it owns LinkedIn, runs a thriving cloud computing service, and owns a video game company. But as with every company in today's market, everyone wants to know what Microsoft is doing with artificial intelligence (AI).

Fortunately, Microsoft has an AI strategy that appears to be working out.

It has incorporated AI productivity tools into its various applications through Copilot, which has reached a $37 billion annual run rate and is growing at a 123% pace. Microsoft Azure has also become a popular platform for building AI applications. In fact, many of OpenAI's (the makers of ChatGPT) models are trained and run on Azure. During the third quarter of fiscal year (FY) 2026 (ending March 31), Azure's growth rate was 40%. Despite these strong business units, the market isn't in love with Microsoft's stock, which has deeply sold off. But I think that's a mistake.

Microsoft's stock is unbelievably cheap from many viewpoints, and now is the perfect time to pounce. From an earnings standpoint, this is the cheapest Microsoft has been over the past decade.

MSFT PE Ratio data by YCharts

Microsoft has a healthy earnings growth rate (its diluted earnings per share (EPS) rose 23% in its most recent quarter), so if Microsoft's stock price stays flat, the stock will continue to get cheaper.

Sometimes earnings can be skewed due to one-time events, but cash flow metrics are normally a bit more stable. From an operating cash flow perspective, Microsoft isn't quite at decade lows, but it's very close.

MSFT Price to CFO Per Share (TTM) data by YCharts

Microsoft clearly doesn't get this cheap all that often, and with the strong success its business is seeing, I think it's a no-brainer buy today. Smart investors like billionaire Bill Ackman took a $2 billion position during the first quarter of the calendar year, and the stock is now cheaper than at any point in that quarter. I think this clearly marks Microsoft as a smart buy, and long-term investors will be happy they bought shares today.

Keithen Drury has positions in Microsoft. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.