TradingKey - Microsoft just made its most daring bet on AI yet and barely anyone even noticed.
While the markets were all worked up about global uncertainty and the economy, Microsoft AI was pretty quietly dropping some major new building blocks in mid-April: MAI-Transcribe-1 (speech-to-text that can handle 25 languages, and is about, 2.5x faster than what was already available on Azure), MAI-Voice-1 (custom audio generation), and MAI-Image-2 (solid image and video generation for business). And all three are already live via Azure AI Foundry.
This doesn't feel like just an incremental update to their product lineup - it feels like a total declaration of independence. After three years of essentially piggy-backing on OpenAI to get their AI cred, Microsoft has finally gone off on their own and are building their own cutting edge models - and doing it big. Big enough that the likes of Google, Meta, and Anthropic are going to find it hard to compete with.
The stock price meanwhile is stuck at $370.87 - that's down 33% from the high it hit in 2025 at $555. The question is - are the markets just giving us a once in a lifetime chance to buy in on a top-notch tech stock at a steal, or are we in for more pain before things turn around.
The Fundamental Case Is Stronger Than the Price Suggests
Microsoft's Q2 FY2026 results (announced on January 28) were nothing short of outstanding - across the board:
- Revenue was a whoppin' $81.3 billion, an increase of 17% vs last year
- Earnings per share came in at $4.14 - a 7% beat over what everyone thought it would be, at $3.86
- They finally broke $50 billion in a single quarter with Azure, with growth of 26% YoY
- $625 billion in future revenue all lined up and waiting to roll in
- Operating profit margins at 47% - that's strong, especially when you consider they just sunk a record $37.5 billion in capex
Microsoft CEO Satya Nadella basically added a tiny city's worth of new data centre space in a single quarter, which is the size of about 1 gigawatt - all of it dedicated to AI infrastructure. At the same time they paid back $12.7 billion to shareholders in the form of dividends plus buybacks.
At $370 MSFT is trading at roughly 22 times forward earnings - which is well below its average multiple over the last 5 years, and is probably the cheapest it has been relative to its growth rate in a long while.
The Next Catalyst - April 29th Earnings To Watch
Q3 FY2026 earnings land on April 29, just 18 days away. Analyst consensus expects:
- Adjusted EPS: approximately $4.04 - an increase of 16.8% year-over-year - you've got to wonder if all that Azure growth is starting to pay off.
- Revenue: $80.65-81.75 billion - that's a pretty big range but one thing's for sure: this news is going to move the needle.
- Azure growth: 37-38% in constant currency - that's a serious uptick and one that will have everyone keeping a close eye on April 29th.
Three things are going to drive the stock's movement: Azure AI demand picking up pace, Copilot starting to generate some real revenue and - crucially - some insight into Microsoft's capital expenditure plans. Copilot now has a pretty impressive user base with over 150 million people using it across Teams, PowerPoint, Excel, Bing and GitHub. But analysts want to know what that's really worth, and April 29th is when - quite literally - the books get opened.
As an interesting aside - see that M365 E7 Frontier Worker Suite at $99 a month per user? That does a pretty neat line in bundling all the extras - Copilot, advanced security and compliance - into one nice, shiny SKU. And this could in theory drive a bit of a material revenue boost too - a very tasty prospect indeed.
Sovereign AI - Where Microsoft Is Betting The Next 10 Billion
Now Microsoft isn't just talking about AI - it's actually putting its money where its mouth is, with a $10 billion bet to build sovereign AI capacity in countries like Japan, with major players Sakura Internet and SoftBank on board. This is all about getting in-country AI capacity up and running for governments and regulated enterprises. This is happening in other places too - in Thailand and throughout Southeast Asia.
Let's not forget about the custom silicon that's part of this equation - those Maya 200 (GPU) and Cobalt 200 (CPU) chips are going into production right now, doing all they can to bring the cost of running AI at scale seriously down.
Benchmark has just initiated a Buy rating with a price target of $450 - and it's all because of one very simple reason: Microsoft now has the infrastructure control it needs to take AI to the next level - its AI models are now independent, or at least they're going to be. And it's this kind of savvy thinking that institutional buyers have been quietly getting on board with - at these very levels - and it says a lot about just how smart some of that money is.
What Could Go Wrong Here
The bear case deserves some serious respect. US-Iran tensions and the Strait of Hormuz complex have spooked investors all over the place, and even MSFT can't easily sidestep the macro headwinds that are making a mess of tech stocks right now. Now, we're talking about some big numbers here - a whopping 37.5 billion dollars splurged on AI infrastructure in just one quarter - and the question on everyone's lips is when do we start seeing some kind of proportional returns from that kind of investment? The truth is, it's going to be years, not quarters, before we see any kind of payoff.
To add to Microsoft's woes, the UK CMA is probing its cloud licensing practices, which is another regulatory headache for the company to deal with. And of course, there's the small matter of Google DeepMind, Meta and Anthropic all gunning for MSFT in the model layer - it's a competitive landscape to say the least. MSFT's response, though - trying to control the distribution of its models through 365, Teams, GitHub and its own models - is the right strategic move. But let's not get ahead of ourselves here - execution risk is very real.
What the Chart is Saying
Microsoft (MSFT) is trading around $373 on the 4 hour chart at the moment, having bounced back from that $355 support zone. The price started at a pretty low base and has since moved back above a couple of key Fibonacci levels - the 0.236 and 0.382 levels at $367 and $374 respectively. This is a pretty clear sign that the momentum is starting to shift in favour of the bulls.
Microsoft (MSFT) Price Chart - Source: Tradingview
The 50-day moving average is stuck in neutral near the current price, but the 200-day moving average at $399 is still a major obstacle - and it just happens to match the overall bearish trend in the market.
The big question is, what's going to happen between $374 and $380? Because that's where the price is stuck right now. If it manages to stay above $380, it could just keep going all the way up to $385.70 (that 0.618 Fib) and even $393.80 (0.786 Fib) - which would be a real positive sign.
Meanwhile we're looking at a higher low forming before a possible breakout. If the price falls below $367, the whole recovery gets wiped out and we're back to where we started - looking at a potential drop to $355.
Bottom Line
Microsoft at $370 is a 17%-revenue-growth, 47%-margin, $625-billion-backlog business trading at a multi-year low valuation, because the market is scared of macro noise. The AI model releases this week prove the moat is deepening, not narrowing.
April 29 earnings is the inflection point. Strong Azure numbers and raised guidance could ignite the technical breakout the chart is already setting up. Watch $380. That is where the story changes.
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