The “Magnificent Seven” started 2026 in a gap. Each member slid within the yr’s first few months as buyers began questioning how a lot that they had been paying for guarantees tied to synthetic intelligence (AI). Since then, nonetheless, a lot of the group has climbed again. As of this writing, the seven are collectively larger on the yr, the S&P 500 is up greater than 8%, and Alphabet has jumped greater than 20%.
However one identify has been ignored of the rebound. Microsoft(NASDAQ: MSFT) is down about 13% thus far in 2026, the worst exhibiting within the group. Even Tesla, which had been vying with Microsoft for final place earlier within the yr, has since pulled forward — as have chipmaker Nvidia, recent off one other robust quarter, and iPhone maker Apple.
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What makes the hole uncommon is that the enterprise itself hasn’t stumbled. So, with the inventory sitting behind the pack, is the software program and cloud big’s inventory lastly value shopping for?
Picture supply: Getty Pictures.
A enterprise that retains rushing up
Microsoft’s fiscal third quarter of 2026 (the interval ended March 31, 2026) did not appear like an organization in bother. Income rose 18% yr over yr to $82.9 billion — an acceleration from 17% development the prior quarter, and working revenue climbed 20% to $38.4 billion. Additional, the software program big’s non-GAAP (adjusted) earnings per share rose about 21%.
Much more, Microsoft mentioned its AI merchandise now carry an annual income run charge of greater than $37 billion — up 123% from a yr earlier. Behind it’s every part from exterior builders constructing on Azure, the corporate’s cloud computing enterprise, to Microsoft’s personal Copilot assistant, which crossed 20 million paid seats after including 5 million in a single quarter.
Administration additionally signaled a change in the way it plans to cost for all of this.
“Any per-user enterprise of ours, whether or not it is productiveness, coding, safety, will turn into a per-user and utilization enterprise,” CEO Satya Nadella mentioned through the firm’s fiscal third-quarter earnings name. In plain phrases, Microsoft desires to maintain accumulating its acquainted per-seat charges whereas including prices based mostly on how a lot prospects truly lean on its AI instruments — a mannequin it is already rolling out, beginning with usage-based pricing for its GitHub coding assistant.
And remember that Microsoft has a roughly 27% stake in OpenAI and a non-exclusive license to its expertise by 2032.
A reduction that comes with strings
Additional, after the inventory’s slide, Microsoft trades at a ahead price-to-earnings ratio of about 22 as of this writing — among the many lowest within the “Magnificent Seven.”
It additionally presents the group’s most beneficiant dividend yield, although it is nonetheless modest at 0.9%.
For a enterprise compounding at these charges, this does not appear like a demanding value.
The catch is what the expansion now prices. Microsoft expects to spend roughly $190 billion on capital expenditures in calendar 2026, up about 61% from the prior yr, because it races to construct information facilities.
That spending is beginning to present.
Microsoft’s gross margin in its fiscal third quarter was down yr over yr as depreciation from these information facilities piled up, and administration expects to remain capacity-constrained no less than by 2026. Moreover, if demand for AI computing cools earlier than the build-out pays off, the margin strain may worsen earlier than it improves.
And the OpenAI relationship cuts each methods. A single associate nonetheless anchors a big share of Microsoft’s contracted business work. However meaning the corporate’s backlog may undergo if OpenAI’s enterprise unexpectedly declines or if the AI firm shifts extra of its future enterprise to different cloud suppliers.
Even so, the low cost could also be doing an excessive amount of work. Microsoft is among the many most cost-effective members of the group, but it is rising sooner than it was a yr in the past, with a reputable path to charging extra as AI utilization climbs. The heavy spending, after all, is a threat value watching. And buyers who cannot abdomen a protracted, expensive build-out could choose to attend for clearer proof that it is paying off. However for these prepared to look previous a yr of underperformance, the market’s least-loved “Magnificent Seven” inventory may lastly be value a recent look, however ideally solely as a small place given the excessive dangers of the corporate’s expensive AI build-out.
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Daniel Sparks and his shoppers have positions in Apple. Daniel has shoppers with positions in Tesla. The Motley Idiot has positions in and recommends Alphabet, Apple, Microsoft, Nvidia, and Tesla. The Motley Idiot has a disclosure coverage.
