Why Microsoft Stock (MSFT) Is Down Today and Why One Investor Still Calls It a ‘Strong Buy’

Microsoft (NASDAQ:MSFT) shares are down about 5% today as investors look past a strong quarterly report and focus on the scale of spending required to support its expanding AI ambitions, which is raising concerns about margins and the timing of returns.

The quarter itself delivered across the board, with revenue reaching $82.89 billion, up 18.3% year over year and ahead of expectations by $1.46 billion, while GAAP EPS came in at $4.27, topping forecasts by $0.22. Microsoft Cloud revenue rose to $54.5 billion, up 29%, with Intelligent Cloud contributing $34.7 billion, also up 30%, supported by Azure growth that held near 40% and continued to anchor the broader story.

What is weighing on the stock is the forward outlook, as management guided toward about $190 billion in capital expenditures for 2026, a figure that came in well above expectations and reflects both capacity expansion and rising component costs. That spending profile implies higher depreciation expenses ahead, which is prompting concerns about how profitability will evolve during this heavy buildout phase.

Investor Louis Gerard, however, takes a different approach and views the current reaction as overlooking the bigger picture. He describes Microsoft’s outlook as “a durable AI-driven growth thesis, despite near-term margin headwinds,” arguing that the combination of backlog growth and sustained cloud demand supports a much longer runway than the market is pricing in.

Gerard goes further by pointing to the company’s backlog as a key pillar of his view, noting that the surge to $627 billion represents “tremendous visibility into future cloud demand,” which he believes supports confidence in long-term revenue growth despite near-term cost pressures. The investor frames this backlog as a foundation that should eventually translate into stronger cash flow once the infrastructure is fully utilized.

On the strategy front, Gerard sees Microsoft’s evolving relationship with OpenAI as a meaningful positive, stating that the changes “eliminate a major margin drag” while also allowing the company to “pursue a multi-model AI strategy,” which he believes enhances flexibility and strengthens its long-term competitive positioning. That shift, in his view, reduces dependency while opening the door for broader innovation across Microsoft’s AI stack.

Gerard also highlights the company’s internal progress as another reason to stay constructive, pointing to advances in custom silicon and data center efficiency that are already improving performance metrics across its infrastructure. The investor believes these improvements will play a critical role in ensuring that the current spending cycle translates into better returns over time.

From a valuation standpoint, Gerard remains confident that the opportunity is still attractive, maintaining a Strong Buy rating and citing what he sees as a “compelling forward P/E” alongside Microsoft’s leadership in industrial AI and continued execution across its cloud business. He argues that the stock does not fully reflect the scale of growth that could emerge as AI adoption continues to expand. (To watch Gerard’s track record, click here)

Wall Street is largely aligned with that constructive view, with MSFT carrying a Strong Buy consensus rating based on coverage from 32 analysts over the past three months. The breakdown includes 30 Buy ratings and just 2 Holds, with no Sell recommendations. Price targets also reflect that optimism, with an average price target of $554.33, implying about 38% upside from current levels. (See MSFT stock forecast)

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.