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Microsoft Corporation (MSFT) has spent decades becoming almost impossible to avoid. Headquartered in Redmond, Washington, the technology giant sits behind Windows, Office, and Azure, products that have become staples for businesses and consumers alike.
Microsoft has also thrown its weight behind artificial intelligence (AI), Xbox gaming, and enterprise technology, helping it remain one of the world's most valuable companies at the forefront of digital innovation.
That impressive reputation, however, has not translated into a winning year for shareholders. Despite carrying a market cap of nearly $2.9 trillion, Microsoft has struggled to keep up with the broader market.
MSFT stock retreated 23.3% over the past 52 weeks while the S&P 500 Index ($SPX) powered ahead with a 16.3% gain. Even in 2026, the stock has had little relief. Shares are down 18.7% year-to-date (YTD), trailing the benchmark index's 8.5% advance by a comfortable margin.
The company has also lost ground against its own sector. The State Street Technology Select Sector SPDR ETF (XLK) has returned 29.6% over the past 52 weeks and added 18.8% YTD, leaving Microsoft on the wrong side of the scoreboard.
Microsoft's recent underperformance has less to do with its growth prospects and more to do with investors waiting for its hefty AI investments to start delivering meaningful returns. The company spent $31.9 billion on capex in Q3 FY2026, marking a 49% year-over-year (YOY) increase. Management also expects 2026 capital spending to approach $190 billion, due to soaring memory costs.
The aggressive investment push weighed on free cash flow and dragged gross margin to 67.6%, its lowest level since 2022. Even so, Microsoft is not fighting this battle alone. Big Tech companies are collectively pouring hundreds of billions into AI infrastructure in 2026, making this an industry-wide investment cycle rather than a Microsoft-specific challenge.
Even with those concerns hanging in the air, Wall Street expects Microsoft to deliver diluted EPS of $16.70 for full-year FY2026, which ends in June. That would represent annual growth of 22.4%. The tech giant has also earned the benefit of the doubt after beating EPS estimates in each of the past four quarters.
Wall Street seems happy to keep Microsoft in its good books, as the stock carries an overall rating of “Strong Buy.” Among 51 analysts covering the name, 42 have assigned a "Strong Buy" rating, five recommend a "Moderate Buy," and four advise investors to "Hold."
Confidence has actually strengthened in recent months. Two months ago, 39 analysts rated Microsoft as a "Strong Buy." Since then, more analysts have joined the bullish camp, reflecting confidence in the company's long-term growth.
Guggenheim added to that optimism on Monday, July 27, by reaffirming its "Buy" rating on MSFT stock. Analysts led by John Difucci left their $586 price target unchanged, signaling that they still see Microsoft's competitive edge and long-term growth intact.
Analysts, for their part, believe the rally may not have run its course. Their average price target of $544.31 implies potential upside of 38.4%. Meanwhile, the Street-High target of $680 suggests the stock could climb another 72.9% from its current level.
