Does Microsoft need a re-boot?

Cost of AI commitment, ROI outlook troubles investors

Several years ago, someone asked me what stock I would own if I could only choose one.

My answer was Microsoft Corp. (NSD: MSFT).

The company had everything going for it. Its Windows operating system is used on billions of computers worldwide. Programs like Excel, PowerPoint, and Word generated huge annual subscription revenues through the Microsoft 365 (formerly Microsoft Office) suite. The company’s Azure cloud computing platform was one of the leaders in the field. Its Xbox consoles and Xbox game pass made it a dominant player in the gaming business.

All this resulted in huge gains for investors. At the start of 2009, you could have bought shares for about $17 (US dollars). In mid-2025, it hit an all-time high of $555.45.

Then it all seemed to cave in. The shares have lost over 17% in the past 12 months and, after a brief rally, have started sliding again. Why? Good question.

The numbers look solid. Results for the 2026 third quarter showed revenue of $82.9 billion, up 16% from the same period last year. Microsoft Cloud revenue was $54.5 billion and increased 29% (up 25% in constant currency), and commercial remaining performance obligation increased 99%, to $627 billion.

Net income was ahead 23% on a GAAP basis, to $31.8 billion ($4.27 per diluted share).

“We delivered results that exceeded expectations across revenue, operating income, and earnings per share, reflecting strong execution and growing demand for the Microsoft Cloud,” said Amy Hood, executive vice president and chief financial officer of Microsoft.

Based on those results, the company appears to be doing well. But the stock continues to sell off.

Some investors feel it had become too pricy. But the current p/e ratio of 23.22 is lower than other Magnificent Seven stocks like Alphabet Inc. (NSD: GOOGL) (p/e of 27.49), Meta Platforms Inc. (NSD: META) (p/e of 27.51), Amazon.com Inc. (NSD: AMZN) (p/e of 31.14), and NVIDIA Corp. (NSD: NVDA) (p/e of 31.23).

Microsoft’s AI investment

Another reason analysts are suggesting is the role of artificial intelligence. Microsoft is expected to invest about $190 billion this year to build and support its AI platforms. The problem is that no one really knows how it will recoup that money in profits, or the total cost of its AI commitment in the coming years. But some investors are concerned.

Microsoft’s approach to AI is guided by six core principles: fairness; reliability and safety; privacy and security; transparency; inclusiveness; and accountability. Company president Brad Smith compares AI to electricity, saying its role is to improve human capabilities rather than replace them.

These are principles most people can support. What we don’t know is how they will translate in bottom-line terms when compared with the companies that take a more aggressive approach to AI. Investors are becoming more cautious as competitors like Alphabet roll out their AI products, which in some cases are viewed as superior.

AI is not the only uncertainty Microsoft is dealing with. Others include:

Cloud growth. Azure continues to generate good numbers, with revenue up 40% in the latest quarter. But investors are concerned this growth rate is not sustainable and worry about the order backlog for this segment of the business.

Regulatory pressures. Public concern about the effects of AI are prompting politicians and regulators to consider setting tight standards for using these systems in workplaces, schools, research, and more.

Corporate restructuring. Microsoft has been laying off staff. About 15,000 were let go in 2025, and in April of this year the company offered buyout packages to 7% of its U.S. workforce.

Tech volatility. Tech stocks have been volatile as a group for several months. The S&P 500 Information Technology Sector hit its lowest point of the year in late March. It has rallied since, but Microsoft shares have continued to lag.

Alternative options. The record IPO launch of Space Exploration Technologies Corp. (NSD: SPCX) resulted in $80 billion in trading. Some of that money undoubtedly came from recent or current Microsoft shareholders.

In short, Microsoft’s decline appears to be based on a variety of factors, some of which appear to be relative trivial. This looks like a case of oversell, so investors looking to add to their tech sector exposure might use the opportunity to take a position while the stock is cheap. However, check with your financial advisor before investing to ensure the stock aligns with your risk tolerance level (tech stocks can be volatile and risky) and longer-term financial objectives.

Gordon Pape is one of Canada’s best-known personal finance commentators and investment experts. He is the publisher of The Internet Wealth Builder and The Income Investor newsletters, which are available through the Building Wealth website.

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Notes and Disclaimer

Content © 2026 by Gordon Pape Enterprises. All rights reserved. Reprinted with permission. The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned carry risk of loss, and no guarantee of performance is made or implied. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting, or tax advice. Always seek advice from your own financial advisor before making investment decisions.

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