3 Reasons Why Microsoft Stock Looks Cheap and Has a Strong Buy Case
Microsoft's stock is considered undervalued with a forward P/E of 22, despite its AI business growing at triple digits and a $627 billion backlog. The company's CFO expects double-digit revenue and operating income growth in FY '27.
Microsoft is trading at a forward P/E of 22, with its AI business growing at triple digits and a contracted backlog underwriting years of revenue. The stock has pulled back to around $411 from its 52-week high of $552.45. Microsoft's trailing P/E is 25, with 23% YoY earnings growth and a PEG of 1.29. Wall Street's average target is $560.77, with 51 Buy ratings and zero Sells. The company's commercial remaining performance obligations increased to $627 billion, up 99% year over year. Azure grew 40%, and the AI franchise hit a $37 billion annualized run rate, up 123%. Microsoft's Q3 FY26 EPS was $4.27, beating the $4.07 estimate, with revenue of $82.89 billion, up 18% YoY. The next report is due July 29, 2026, with management guiding Azure growth between 39% and 40% in constant currency for Q4. The company's capex jumped 84% YoY to $30.88 billion, but CFO Amy Hood remains confident in the return on these investments.
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