The S&P 500 is on track for its fourth straight year of double-digit gains, something it hasn't pulled off since the 1990s. Imagine how much better the run would look without Microsoft, which is down 12% in 2026 and is the single biggest drag on the index, more than Meta and Tesla combined.
Microsoft's late-April earnings report rattled investors, with growth in the Azure cloud business looking weak next to what Alphabet and Amazon reported. That comparison suggested Wall Street's other AI cloud bets are working faster than Microsoft's right now.
The company also said it expects to spend about $190 billion on data centers and equipment through the end of December, more than Wall Street had penciled in. Big spend plus slowing growth equals an unhappy stock.
It's also caught in a broader software panic, with investors worried that companies like Anthropic and OpenAI could chip away at Microsoft's bread and butter as more users build their own software with AI instead of buying it off the shelf.
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Two summers ago, Microsoft traded at 35 times expected earnings. Today it sits at 22 times, which is cheaper than its 10-year average of about 27, and in late March, the price-to-earnings ratio briefly dipped below 20, the lowest level since 2016.
That valuation reset is exactly why some big-name investors are buying. Bill Ackman's Pershing Square just disclosed a $2.1 billion Microsoft stake, paid for in part by trimming its Alphabet holdings, and Ackman said the worries about Microsoft's growth are "misplaced."
Wall Street mostly agrees, with 67 out of 71 analysts still rating Microsoft a buy and the average price target implying a 32% climb over the next year, the second-best projected return in the Magnificent Seven, just behind Meta.
Wall Street expects revenue growth to hit 17% this fiscal year, picking up from 15% the year before. Profit growth is pegged at 26% this year, slowing in 2027 before re-accelerating.
Howard Chan, who runs Kurv Investment Management, framed it plainly: there are still a lot of unanswered questions, but with sentiment this bad, the upside looks bigger than the downside.
Microsoft shares ticked up Thursday after a report that Anthropic is in early talks to rent servers powered by Microsoft-designed AI chips. The next big test is whether Azure growth re-accelerates over the next two quarters, and until that happens, this is less a broken story and more a waiting game for the people who own it.
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