Microsoft Corporation

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Bullish +75

Microsoft's AI Revenue Run Rate Just Crossed $37 Billion. Is It the Best AI Stock to Buy Now?

📈 Microsoft's AI annual recurring revenue grew 123% year-over-year to surpass $37 billion in fiscal Q3 (ended March 31).

💻 Copilot is the primary AI business, integrated into Microsoft 365, Windows, Edge, and other software services.

☁️ Azure cloud computing platform serves as a major growth lever, providing processing power for training AI models and hosting applications.

📊 Azure's revenue grew at a rate of 40% in the same period, reflecting strong demand for AI infrastructure.

📉 Overall company revenue increased by 8% in fiscal Q3 despite the company's large size and maturity.

💰 The stock is currently valued cheaply relative to its operating cash flow, a metric preferred over P/E due to investment gains.

📉 Microsoft's share price has fallen significantly, trading at a lower P/CFO ratio than seen since before the COVID-19 pandemic.

🤖 Analysts suggest Microsoft offers highly predictable returns and should be near the top of lists for AI leaders.

⚠️ The author hesitates to call it the absolute best AI stock to buy immediately due to varying investor situations.

📈 Stock Advisor issues "Double Down" alerts for Nvidia, Apple, and Netflix based on historical investment performance data.

🔒 Keithen Drury holds positions in Microsoft, and The Motley Fool also has a disclosed position and recommendation in the stock.

Bullish Signals
  • Microsoft's AI annual recurring revenue grew by 123% year over year to surpass $37 billion in fiscal 2026 third quarter.
  • Azure cloud computing platform is experiencing a 40% growth rate as it supplies heavy share of AI processing power for clients.
  • Overall, Microsoft grew revenue by 8% in its fiscal Q3, demonstrating solid growth despite the company's size and maturity.
  • Microsoft stock is currently cheaply valued relative to its operating cash flow, trading at a lower P/CFO ratio than since before COVID-19.
  • The company offers highly predictable returns as an AI leader with multiple revenue levers including Copilot and Azure.
  • Analysts have issued a 'Double Down' stock recommendation for Microsoft, signaling confidence in its potential to pop.
Risk Factors
  • The article explicitly states that the stock 'should be doing a lot better than it is', indicating underperformance relative to its business execution.
  • The author hesitates to call Microsoft 'the best AI stock to buy now', implying it may not be the top choice among competitors in the AI sector.
Full Analysis
Microsoft's AI revenue run rate surpassed $37 billion in its fiscal 2026 third quarter, which ended March 31, representing a 123% year-over-year increase. The company highlighted two primary business drivers for this growth: Copilot, its AI assistant integrated into Microsoft 365, Windows, and Edge, and Azure, its cloud computing platform. Azure's revenue grew by 40% as it supplies the heavy processing power required for training AI models and hosting applications built on large language models. Overall, Microsoft reported an 8% revenue increase in fiscal Q3, maintaining solid growth despite its size and maturity. Analysts note that Microsoft stock is currently undervalued relative to its operating cash flow, with a price-to-operating-cash-flow ratio lower than it has been since before the COVID-19 pandemic. This valuation metric is preferred over earnings-based ratios because Microsoft's recent investment in OpenAI has generated significant gains that distort traditional price-to-earnings calculations. While the stock has rallied from cyclical lows, it remains cheaper on a P/CFO basis, suggesting it could be a solid buy for investors seeking an AI leader with predictable returns. The article concludes that while every investor's situation differs, Microsoft should be at the top of lists for those looking for stability in the AI sector.