Microsoft stock is on its best rally in 26 years. Is it too late to buy?

Microsoft shares rose 24.9% over the last three trading sessions following the release of strong quarterly earnings. This is the best performance since October 2000, when the company’s shares rose 29.24% over the same period, according to MarketWatch, citing data from Dow Jones Market Data.

Following the rally on July 30—which added $450 billion to the tech giant’s market capitalization in a single day, marking the largest one-day gain in market value in history among all U.S. companies—Microsoft’s stock continued to rise. The previous day, they closed up nearly 5%, helping Microsoft recoup its losses since the start of the year: they are now up 0.8% for the year. MarketWatch attributes this trend to easing market concerns about the company’s plans in the field of artificial intelligence.

The company reported an acceleration in quarterly revenue growth for its Azure cloud service—this segment as a whole posted its strongest growth rate since the beginning of 2022 during the most recent reporting period. Microsoft also reported that the number of paying users of its AI assistant Copilot has exceeded 30 million and assured investors that it does not expect negative free cash flow in the new fiscal year. In the previous quarter, the company’s capital expenditures totaled $41 billion, an increase of approximately 70% year-over-year. Nevertheless, for the full year 2026, Microsoft confirmed its previous guidance for this metric—approximately $190 billion.

Investors viewed Microsoft’s announcements as confirmation that the company’s massive investments in artificial intelligence are paying off, says Will Reind, CEO of GraniteShares, an exchange-traded fund (ETF) provider. “The reason this rally has grounds to continue is that Microsoft has finally answered the question the market has been asking for the past 18 months,” he wrote in a commentary for MarketWatch, referring to investors’ doubts about whether large capital expenditures could deliver sufficient returns. According to him, what’s happening isn’t just a belated reaction to the earnings report, but a reassessment of Microsoft’s progress in the field of AI—in other words, the market is beginning to factor a higher multiple into its valuations.

In attempting to assess Big Tech companies’ corporate spending on AI, the market is “entering uncharted territory,” noted Luke Rabari, portfolio manager of the Rational Equity Armor Fund. However, Microsoft and other major cloud providers “are investing [in new technologies] at such levels for a reason,” he believes.

"Even despite rising costs, Microsoft and other major cloud providers have 'generally demonstrated their inability to keep up with demand [in this area], despite the rapid expansion of their infrastructure,'" agrees William Blair analyst Sebastian Naji.

Overall, of the 66 Wall Street analysts who cover Microsoft stock, 53 recommend buying, three recommend holding, and there are no sell recommendations for the tech giant’s shares. The consensus price target—$550 per share—implies an increase in Microsoft’s stock price of nearly 13% from the previous close.

This article was AI-translated and verified by a human editor