Microsoft Stock Might Be the New “Big Steal” of the Mag 7
Quick Read
Microsoft trades at a 25x trailing P/E, a multi-year discount that makes it arguably the most undervalued Magnificent Seven AI stock today.
MSFT's Maia 200 chip is an underappreciated margin-growth catalyst as the company works to close the gap on Google's custom silicon advantage.
Michael Burry's Q1 2026 buy joins broader smart money accumulation as a packed demand backlog and priced-in negativity signal strong second-half comeback potential.
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The market is getting overheated, and with that, fresh correction predictions are bound to come flowing in. But beneath the red-hot S&P 500 are some terrific individual bargains that value investors should have on their radars.
Of course, running a screener is bound to yield a list of intriguing names trading at historical discounts. But you don't have to dig deep into the 500 names that make up the S&P to spot value that looks almost absurd, given the state of the AI revolution and where the market stands today.
As less-bullish market strategists crank up their 2026 price targets while others point to elevated volatility after an impressive first half of the year, it may be wiser to focus on individual names rather than subscribe to any single pundit's view on where the broad market heads over the next few months.
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Microsoft stock is a "big steal" for more reasons than one
When it comes to value, you don't need to look further than the Magnificent Seven. And within that group, Microsoft (NASDAQ:MSFT) stands out as the big steal heading into the second half of 2026. The setup hadn't looked this compelling for the fallen enterprise giant in years when this piece was first written in late May, and since then the company's own results have validated exactly that thesis.
At the time of the original writing, Microsoft had just emerged from a brutal Q1 2026, when shares fell 23%, their worst quarterly drop since the Great Recession. The stock sat roughly 22% below its July 2025 all-time high of $555.45, and the trailing P/E had compressed to around 25x against a five-year median closer to 34x. That's the kind of multiple compression that tends to attract disciplined, contrarian capital, and indeed it did: Snowflake (NYSE:SNOW) wasn't the only software name sparking interest. Michael Burry disclosed a new long position in Microsoft via his Substack newsletter in late April 2026, framing it as part of a broader thesis on software stocks that had been unfairly punished by AI anxiety rather than any real deterioration in fundamentals.
The valuation case was straightforward. At roughly 25x trailing earnings, Microsoft was one of the most historically cheap mega-cap AI stocks in the market. Azure wasn't doing it for investors anymore at that moment, but betting against a growth reacceleration in H2 looked like a mistake, given the company's massive infrastructure buildout and a commercial backlog that had ballooned to $625 billion. Execution risk was real, but the question was never whether Microsoft had the pieces in place. The question was timing.
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The second half delivered exactly the growth surprise the setup promised
The patience required turned out to be short-lived. Microsoft's fiscal fourth quarter (ended June 30, 2026) answered the bear case definitively. Azure revenue grew 43% year over year in the quarter, ahead of analyst estimates of roughly 40%, and annual Azure revenue crossed $100 billion for the first time in the company's history, up 41% for the full fiscal year. Total Q4 revenue reached $90 billion, up 18% year over year, while GAAP net income jumped 31% to $35.8 billion. Diluted EPS came in at $4.81 on a GAAP basis, up 32%.
The commercial remaining performance obligation, essentially the locked-in future revenue backlog, surged 84% to $678 billion. That figure is concrete evidence that AI-driven demand has translated into long-term enterprise commitments, not just pilot projects. Azure growth guidance for the following quarter came in at 45% in constant currency, above the 41% Street consensus, suggesting the reacceleration isn't a one-quarter phenomenon.
Copilot monetization, another bear-case target, also broke out. Paid Microsoft 365 Copilot seats reached 30 million by the end of Q4 FY26, up from 20 million in Q3 and just 15 million in Q2. That means the paid seat base doubled in roughly two quarters, and the 10 million seats added in a single quarter was the fastest quarterly addition since Copilot launched in November 2023. Microsoft's AI business hit a $37 billion annual revenue run rate, up 123% year over year.
The Maia 200 chip is a margin story the market was missing
The custom silicon thesis has also firmed up materially. Microsoft unveiled the Maia 200 in January 2026, its second-generation in-house AI accelerator, built on TSMC's 3-nanometer process with 140 billion transistors. The chip is purpose-built for inference, the part of the AI compute cycle that scales with every user query, and Microsoft claims it delivers 30% better performance per dollar than the prior generation. In benchmark comparisons, Microsoft says Maia 200 outperforms Amazon's Trainium chip on certain metrics and exceeds Google's latest TPU on others.
The chip is already running production workloads: Copilot and OpenAI's GPT-5.2 models are both served in part by Maia 200 at Microsoft's data centers in Iowa and Phoenix. That deployment matters because inference costs are a variable expense that scales with adoption. Every query answered by a lower-cost Maia chip rather than a third-party GPU improves Microsoft's AI gross margin. As the AI workload mix continues shifting from training (a one-time fixed cost) toward inference (an ongoing variable cost), owning that silicon becomes an increasingly powerful structural advantage.
Google has been in the custom silicon game for longer and still holds a significant lead in breadth of deployment. But Microsoft has closed the performance gap faster than many observers expected, and the Maia program gives the company a path toward AI compute economics that could look very different in two or three years than they do today.
The patience required turned out to be short
Any way you look at it, Microsoft had a significant amount of negativity priced in during the spring of 2026, and the stock's subsequent recovery reflected a market repricing that thesis. The trailing P/E has drifted back toward 28x, still below its 10-year median of around 33x, which means the valuation remains undemanding relative to history even after the rebound. The backlog is packed, Copilot is scaling, Azure is reaccelerating, and the Maia program is generating real data-center-level economics. CEO Satya Nadella's steady hand has steered the company through supply constraints, agentic AI pivots, and the ongoing Copilot ramp, and the fiscal 2026 results suggest the fumbles were navigational, not structural.
The tailwinds are arriving. The size of the comeback is becoming clearer.
Editor's note: This article has been updated to reflect Microsoft's fiscal Q4 2026 earnings results, including Azure's 43% quarterly growth and crossing $100 billion in annual revenue for the first time, the growth of paid Microsoft 365 Copilot seats to 30 million, the commercial RPO reaching $678 billion, and additional detail on the Maia 200 chip's confirmed benchmarks and production deployment. The trailing P/E figure has been revised from 25x to approximately 28x to reflect current valuation data.
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