Microsoft Stock: Is Now the Right Time to Buy or Should You Hold Off?
Key Points
Microsoft's strong fiscal Q4 report helped the stock rebound from a significant slump.
Cloud revenue is still the main story, and its cloud platform generated record activity.
Microsoft expects to be free-cash-flow positive in its fiscal 2027, indicating that it won't have to raise money to fund its AI infrastructure build-out.
Just a few months ago, Microsoft (NASDAQ: MSFT) stock was down more than 25% year to date, but it has rebounded convincingly since it posted its latest financial results, erasing its entire decline.
The tech giant's fiscal 2026 fourth-quarter report had a lot of good news, but after the recent rally, some investors may feel like they've missed their chance to buy. However, before jumping to that conclusion, there are a few details you ought to consider.
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Cloud revenue continues to propel Microsoft
Cloud computing has been Microsoft's golden ticket in recent years, and strong AI tailwinds suggest that the trend will continue. The company's cloud revenue was up by 27% year over year in fiscal Q4, and made up almost one-third of total sales. That was enough to lift Microsoft's overall revenue by 18%.
The tech leader also revealed a $678 billion backlog for its cloud platform. That's more than 10 times the amount of revenue Microsoft generated from cloud computing this quarter, which shows that it has meaningful revenue visibility.
The cloud unit is truly the main focus in the company's earnings results, but segments like LinkedIn and search engine advertising revenue also posted double-digit percentage growth. Xbox content and services revenue dropped by 10%, dragging down the "more personal computing" segment, but that part of the business doesn't carry nearly as much weight as cloud computing.
Microsoft is getting more AI demand
The impressive cloud backlog isn't the only indicator that Microsoft can continue to deliver high revenue growth rates. During the earnings call, CEO Satya Nadella said that AI sovereignty is "increasingly top of mind for our customers." It lets customers run cloud platforms on customer-controlled, disconnected environments.
Microsoft will also be among the first cloud providers to deploy next-generation rack-scale AI infrastructure, further establishing a moat against other cloud competitors. Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) are the other two leaders. Between the three of them, they control more than 60% of the cloud market, leaving the remaining cloud platforms to battle for what's left.
Microsoft also cited "record usage intensity" across its cloud services. The company is well positioned for agentic AI, with revenue from its Foundry platform more than doubling year over year.
On the earnings call, Microsoft CFO Amy Hood dropped another key insight, saying that the company expects to remain free-cash-flow positive in fiscal 2027. That means Microsoft can continue to fund its AI infrastructure build-out with operating income instead of borrowing money or selling new shares and diluting stockholders. It's also a sign that the AI build-out is healthy and scalable for the company.
The future looks bright for the company, yet it trades at a P/E ratio of just 27.4. That's a similar valuation to the average for the S&P 500, which is filled with companies that aren't growing as rapidly as Microsoft.
Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.