Down 22% in 6 Months, Is Microsoft Stock a Buy?

Core Viewpoint - Microsoft shares have declined by 22% over the past six months, raising questions about whether it is a good time for investors to buy the stock or if it will continue to decline in the near future [1]. Financial Performance - In Q2 of fiscal 2026, Microsoft reported a revenue increase of 17% year over year, reaching $81.3 billion, with Azure revenue growing by 39% [4]. - Adjusted earnings per share rose by 24% to $4.14, indicating strong financial performance [4]. Capital Expenditures and Growth - The company has significantly increased its capital expenditures to fuel cloud and AI ambitions, with capex reaching $37.5 billion, a 66% year-over-year increase [5]. - Azure growth appears to be stabilizing, with projected growth of 37% to 38% in Q3 2026 [5]. Market Expectations - The decline in stock price is attributed to the market's expectations for accelerating growth, which has not been met despite solid performance [6]. - The high growth from Azure was already factored into the stock price, leading to negative market reactions to results that are perceived as average [6]. Valuation and Investment Potential - The recent poor performance has made Microsoft stock more reasonably valued, trading at 24.7 times forward earnings, which is competitive compared to peers and the industry average of 24.5 [7]. - Despite slowing growth, Microsoft remains a leader in cloud computing and AI, benefiting from strong enterprise relationships and a partnership with OpenAI [8]. - The company has a competitive advantage due to switching costs, making it attractive for long-term investors at current price levels [8].