This Magnificent Software Stock Is Down 35%. Buy It Before It Sets a New All-Time High.

The weakness since November makes enough superficial sense. That's when the world began rethinking the actual value of artificial intelligence (AI), as well as most AI stocks' steep valuations. Now down 35% from its late-October peak, however, the sellers have arguably overshot their target when it comes to Microsoft (NASDAQ: MSFT). That means opportunity for you.

The stage was set for a sizable pullback no matter what

Don't misunderstand. Microsoft shares may or may not have reached their ultimate bottom. They're likely closer to that low than not, though, and certainly destined to rebound to new record high sooner than later.

Microsoft's artificial intelligence business is the key culprit behind the pullback. It's not doing as well as it seemingly should. Microsoft's AI-powered Copilot chatbot only boasts about 3% global market share, according to numbers from Statcounter. And, while it's faring better in North America with a share of around 6%, only a tiny fraction of any of these users are paying for the premium version of the otherwise free artificial intelligence offering. It's also conspicuously not gaining market share on this front.

In this vein, the company's cloud computing platform, Azure, is seeing slowing revenue growth, from a pace of 39% (in constant currency) during the three months ending in September to only 38% during the most recently reported quarter. That's still a big number, but alarmingly, this pace is expected to slow again for the current quarter. And all of these growth numbers are lower than the comparable figures being reported by rivals like Alphabet.

This makes the $120 billion worth of capital expenditures -- mostly on artificial intelligence infrastructure -- that Microsoft intends to make this fiscal year a tough pill for most investors to swallow. It doesn't seem like the company's getting enough bang for its buck. Investors simply panicked.

The business is still there to be won by Microsoft

The issue, however, isn't a lack of demand. As CFO Amy Hood explained during January's earnings call (and reiterated several times), "We continue to see strong demand across workloads, customer segments, and geographic regions and demand continues to exceed available supply."

Perhaps the stumbling block was her comment, "As a reminder, there can be quarterly variability in year-on-year growth rates depending on the timing of capacity delivery and when it comes online, as well as from in-period revenue recognition depending on the mix of contracts." It's a problem simply because most investors haven't been required to be patient when it comes to artificial intelligence. As the industry matures and evolves though, patience becomes an inevitable requirement.

Image source: Getty Images.

And it's certainly worth the wait. This is still one of the world's most important technology companies, after all. Microsoft's Windows operating system remains the foundation of most corporate and consumer computing, installed on two-thirds of the planet's desktop computers (according to Statcounter). And its business/productivity software remains among the world's most preferred options, with the cloud-based version of Microsoft Office alone now reportedly used by as many as 400 million paying subscribers.

The things that once made Microsoft great are still intact. It's just going to take a little time for investors to be reminded of this. Turning newly added AI capacity into revenue over the course of the coming few quarters should help do the trick.

This might help in the meantime: analysts' one-year consensus target of $587.77 is more than 60% above Microsoft stock's present price. The vast majority of analysts also currently rate MSFT stock as a strong buy.

James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Microsoft. The Motley Fool has a disclosure policy.