Investors Are Selling This AI Stock, but Is It Actually a Screaming Buy?

Several stocks have sold off to start the year, but one of the most prominent ones is Microsoft (NASDAQ: MSFT). Microsoft is recognized as a leader in the AI field, but the stock has plummeted nearly 20% in 2026, making it one of the worst big tech companies to be invested in. However, I don't think investors should follow suit and sell. It's time to buy.

I think Microsoft is well worth scooping up at these prices, as it's becoming too cheap to ignore.

Image source: Getty Images.

Microsoft is staying neutral in the AI buildout

Microsoft is taking a different approach than many AI hyperscalers; it's not creating its own generative AI model. While this has advantages and disadvantages, it's the path that Microsoft has chosen. Still, it hasn't stayed completely neutral as it's a large investor in OpenAI, the maker of ChatGPT. Despite integrating ChatGPT's model into its software's AI assistant features, Microsoft also offers other models to build on in its Azure Foundry, such as xAI's Grok and DeepSeek's R1.

This makes Azure a popular option to build AI applications on, and it has shown up in a big way in Microsoft's results. In its fiscal 2026's second quarter (ended Dec. 31), it grew at a 39% year-over-year pace. Management noted that this growth rate could have been higher if new computing capacity was used for external cloud computing capacity rather than internal, which goes to show that demand for Azure's computing bandwidth is massive both internally and externally.

However, the stock still got slammed following earnings despite reporting an impressive 17% revenue growth companywide during Q2.

One area that investors may find concerning is how much Microsoft is spending on building out its AI footprint. However, Microsoft is being more conservative than its peers.

Other cloud computing competitors like Amazon (Amazon Web Services) and Alphabet (Google Cloud) informed investors that they would spend $200 billion and $175 billion to $185 billion in capital expenditures during 2026, respectively. Microsoft spent $37.5 billion during Q2 and expects that figure to slightly decline in Q3. If we use the $37.5 billion in spending during Q2 and annualize it, Microsoft is spending around $150 billion, which is far less than its peers, but still a lot. The reality is, there is still huge demand for AI computing capacity, and if Azure can continue posting growth like this, then the computing capacity building makes sense.

If you're a short-sighted investor, then I can see the concern about how much Microsoft is spending. But if you can take a longer five-year outlook, there's not a lot to be worried about, and now is a great time to buy the stock.

Microsoft hasn't been this cheap in a long time

Because of Microsoft's investment in OpenAI, its net income metrics are skewed. Even if Microsoft doesn't sell its stake in OpenAI, it must report the gain on the investment as net income. So, I prefer to value Microsoft's stock using operating income instead, as it removes this effect. From this standpoint, Microsoft hasn't been this cheap since the huge, marketwide sell-off in 2023. This was an excellent time to buy Microsoft stock, and I think history is repeating itself.

MSFT Operating PE Ratio data by YCharts

The market is presenting a rare buying opportunity for Microsoft stock, and there really isn't any negative news surrounding the market or the stock like there was during 2023. A few years down the road, investors will be kicking themselves for not loading up on Microsoft stock now, and I think there aren't many more investment opportunities that are more compelling than Microsoft.

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