It’s been a solid, if not spectacular, year for Microsoft (NASDAQ:MSFT) investors. MSFT has mostly ridden the market waves, and its roughly 17% gains year-to-date pretty much track with the performance of the S&P 500.
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Still, investors in the perennial blue chipper can list a number of reasons for bullishness going forward. The company’s ubiquitous presence throughout the world via its Microsoft Office product suite provides a comfortable source of revenues, while Microsoft has also planted its flag firmly in the midst of tech revolutions, both current and upcoming.
Top investor Daniel Sparks believes that investors in Microsoft will be enjoying plenty of spoils from the AI race going forward. He’s just not sure about their scope.
“Given the unprecedented nature of this AI investment cycle, it is impossible to predict exactly what kind of returns Microsoft will achieve on its AI spending,” explains the 5-star investor, who is among the top 1% of stock pros covered by TipRanks.
Sparks is happy to acknowledge the company’s strong first quarter fiscal 2026 performance, with revenues rising 18% on a year-over-year basis to reach $77.7 billion.
The majority of these sales came from Microsoft Cloud, which grew at an even faster rate of 26% year-over-year. A particular bright spot came from the Azure and other cloud services segment, which ripped off 40% year-over-year revenue growth.
These numbers compare favorably to Microsoft’s 2025 numbers, which Sparks points out reflect well on the company’s AI investments. Still, this spending is quite “sizeable,” notes the investor, who cites the $34.9 billion in capex during the last quarter.
Another concern for Sparks is MSFT’s valuation, currently at a price-to-earnings ratio of around 35x. According to the investor, this could expose the stock to losses if things don’t continue going smoothly.
“If the AI cycle or enterprise IT budgets stumble, the stock could take a hit,” adds Sparks.
Ultimately, Sparks doesn’t feel that it’s the ideal time to invest in this “thriving” business, as the valuation could very likely “temper future returns.”
“I believe investors may want to wait for a more attractive entry point before building a position in the stock,” concludes Sparks. (To watch Daniel Sparks’ track record, click here)
Wall Street has no such qualms, apparently. With 33 Buys and 2 Holds, MSFT coasts to a Strong Buy consensus rating. Its 12-month average price target of $629.98 implies gains north of 30% in the year ahead. (See MSFT stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.