Is Microsoft the Greatest Bargain in Tech?
Key Points
Microsoft is seeing strong financial results.
Its Azure cloud computing unit is still growing rapidly.
The tech stock trades at a discount to its peers.
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Usually, the words "tech" and "bargain" aren't spoken in the same sentence, but those words have been combined a lot lately, especially with Microsoft (NASDAQ: MSFT). While Microsoft's stock has rallied over the past month alongside the rest of the tech sector, its stock is still over 20% off its all-time high, while many in the tech realm are either at or right around all-time highs.
That's an oddity, because Microsoft is usually on the short list of the best names in tech. So, is it the greatest bargain? Let's take a look.
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Image source: Getty Images.
Microsoft is due for a comeback
If you're looking at Microsoft's last earnings as a clue as to why the stock has been so weak, you'll need to look somewhere else. During its fiscal 2026's second quarter (ended Dec. 31), Microsoft's revenue rose 17% year over year. Earnings per share (EPS) were up 60%, but a gain on its OpenAI investment heavily influenced that figure. Its non-GAAP (generally accepted accounting principles) EPS rose by 23%, which is still impressive for a company of Microsoft's size and maturity.
The star of the show is Microsoft's cloud computing platform, Azure. Azure is one of the primary ways Microsoft will benefit from AI, as Azure's servers are a great place to train and run AI models. This division saw a renewed growth of 39% in Q2 -- one of its best quarters in recent history.
Despite this, Microsoft's stock remains well off its all-time high, but new quarterly results could change that. All it takes is for Microsoft to beat expectations, and the stock is primed for a major run-up, especially since it trades at a discount to its peers.
The most commonly used valuation metric among the big tech companies is the forward price-to-earnings ratio, as it incorporates future growth projections into the business. From this standpoint, Microsoft is a bit behind its peers despite having a similar growth rate.
AAPL PE Ratio (Forward) data by YCharts
If Microsoft rises to about 30 times forward earnings, that would result in about 20% upside -- about the same amount needed to return to its all-time high. I think Microsoft will get that done sometime in the near future, so while it's hard to say that it's the greatest value in tech, I think it is a solid bargain. Microsoft hasn't done anything to earn this lower premium, and I think a run-up will be in store in the near future after a few solid quarterly reports.
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Keithen Drury has positions in Alphabet, Amazon, and Microsoft. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, and Microsoft. The Motley Fool has a disclosure policy.
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