microsoft (NASDAQ: MSFT) has been quietly showing an incredible rise in stock price, rising about 65% in the last year. Part of this rise is fueled by a frenzy of investment in artificial intelligence (AI), and Microsoft is positioning itself at the forefront of this exciting trend.
Microsoft may not have as much exposure as other companies, but Nvidia, still plays a major role in the deployment of AI to the average worker. But does this position put Microsoft at the top of AI investing right now?
Microsoft’s AI products will be integrated into an already dominant product line
Most people know about Microsoft products because they use them every day at work. However, Microsoft aims to make these employees more efficient by integrating AI.
Microsoft has partnered with OpenAI to integrate ChatGPT into many products. Microsoft Copilot is available to businesses as a $30/month add-on to Microsoft 365. It may seem expensive, but it’s a bargain.
If Copilot can improve the efficiency of 100 employees by 1%, it can replace one employee. Her Copilot annual cost for these 100 employees would be $36,000. This is a significant cost savings considering the average salary in the United States in 2024 will be just over $53,000 per year, according to the U.S. Bureau of Labor Statistics. This is also a low estimate since the company’s Copilot product could increase employee efficiency by more than 1%.
Additionally, Microsoft has significant exposure to AI trends through its cloud computing product, Azure. Cloud computing is essential to the proliferation of AI, allowing clients to rent computing power. Most companies don’t need supercomputers on hand to train AI models. Instead, you can offload some of that work to Microsoft’s servers and use it for a rental fee.
Azure has been a powerhouse for Microsoft, increasing by 30% in the second quarter of 2024 (ending December 31). Microsoft doesn’t disclose individual segment results, but its Intelligent Cloud division (of which Azure is a part) generated $25.9 billion in revenue in the quarter, making it Microsoft’s largest division.
It’s now clear that AI is having a major impact on Microsoft’s business, and the company has successfully positioned itself to take advantage of this movement.
But is it a good investment?
Being a great company and being a great investment are two different things.
Microsoft definitely checks the box as a great AI company. Our track record and product development speak for themselves. However, this has put Microsoft stock at a significant premium compared to other stocks on the market. It is an extremely expensive stock with a price-to-earnings ratio (PER) of 37 times and an expected PER of 35 times.
For reference, AI giant Nvidia has a lower forward P/E ratio of 32. This shows how high expectations are for Microsoft, and it raises some concerns about whether it will be able to meet expectations.
From a historical perspective, Microsoft stock hasn’t been this expensive (aside from a few years of lopsided earnings) since the early 2000s, when Microsoft was caught up in the dot-com crash.
I’m not saying Microsoft will collapse, but the stock is very expensive.
So is Microsoft a good place to invest in AI? I would say no. With the bar set incredibly high to begin with, it will be difficult for Microsoft stock to rise significantly.
Additionally, Microsoft already accounts for 7%. S&P500I am very interested in stocks through my 401(k) investments.
Microsoft is a great AI company, but its high price tag makes it a poor AI investment, at least for now.
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Keithen Drury has no position in any stocks mentioned. The Motley Fool has positions in Microsoft and Nvidia and recommends Nvidia. The Motley Fool recommends the following options: His January 2026 $395 long call on Microsoft and his January 2026 $405 short call on Microsoft. The Motley Fool has a disclosure policy.
Is Microsoft a top artificial intelligence (AI) investment? Originally published by The Motley Fool
