Is Microsoft Stock a Steal Right Now?
Key Points
Microsoft is doing well as a business, so the stock sell-off is valuation-related.
The company's stock is following a regular pattern.
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Microsoft (NASDAQ: MSFT) stock hasn't had a great 2026. The stock is down 13.3% since 2026 began, which sets it apart from most other big tech companies that are up by double-digit percentages in 2026. With that kind of share-price performance, investors may be wondering whether Microsoft stock is a buy at that discounted price.
So, is Microsoft a steal right now? Or was the sell-off warranted? Let's take a look.
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Microsoft stock rarely gets this cheap
First, let's look at its recent financial results to see if there are any cracks in its business that investors should be aware of that could explain its poor stock performance.
In Q3 of fiscal year 2026 (ending March 31), Microsoft's revenue rose 18% year over year, with net income rising 23% year over year. Considering Microsoft's size and maturity, those are two healthy figures that are hard to find a flaw in. Microsoft also noted that its artificial intelligence (AI) business surpassed an annual run rate of $37 billion, up 123% year over year.
Another major beneficiary of AI is Microsoft's cloud computing platform, Azure. Azure saw 40% revenue growth during Q3 -- another strong figure.
Microsoft's business is clearly doing well, so why is the stock down so much? It could be tied to its valuation.
Before Microsoft's sell-off (which began in October 2025), it was trading at a relatively high valuation.
Data by YCharts.
Every time Microsoft's share price has risen to about 30 times operating cash flow, the stock has promptly returned to a lower level shortly thereafter. We've seen this pattern multiple times in Microsoft's history, and the latest sell-off is no different. However, the level at which it sold off is much deeper.
At 18 times operating cash flow, Microsoft hasn't been this cheap since 2019. That's a historical sell-off and lends credence to the notion that Microsoft stock is a steal here. If it would just return to a more average 24 times operating cash flow, that would result in a 30%-plus return right there.
I believe that will happen sometime in the second half of 2026, making it a great stock to buy now and hold while we wait for a rally. But even if it takes longer than just one year, Microsoft is doing well enough right now to warrant holding shares. It's a major player in the AI realm, and this could pay off big time over the next few years.
Should you buy stock in Microsoft right now?
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Keithen Drury has positions in Microsoft. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
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