Microsoft shares jump 26% in two weeks as the valuation discount narrows
Microsoft shares have risen 26% since the company reported fourth-quarter fiscal 2026 results on July 29. For a company valued at $3.7 trillion, such a gain in just two weeks is highly unusual and has left some investors wondering whether it is already too late to buy into the rally. The main drivers of the surge were a cheap valuation and reassuring results. The increase was not simply the result of a blowout earnings report; several factors came together. Before the earnings release, Microsoft’s valuation had fallen to what appeared to be an unreasonable discount. From early July until the report, its forward price-to-earnings ratio briefly fell below 20 times, the lowest level in several years. Given the quality and growth of Microsoft’s businesses, that valuation appeared notably low, prompting investors to move in quickly after the results were released. The results themselves provided enough reassurance. Azure revenue grew 43% year over year and continued to expand rapidly. Paid seats for Microsoft’s in-house AI product, Copilot, exceeded 30 million, indicating progress in commercialization. More importantly, Microsoft kept its full-year capital-spending guidance unchanged. During the same period, Alphabet and another company not identified in the source raised their already-high expectations for data-center spending. As investors worried that AI giants might be overbuilding, Microsoft’s decision not to accelerate further was interpreted as more rational and restrained, helping to bolster confidence. Microsoft’s valuation is no longer cheap, but it does not appear to be an obvious bubble either. After the rapid rise, Microsoft’s valuation has returned to a more reasonable range. It remains toward the lower end of its own range in recent years, but compared with some other large technology companies, it is no longer clearly undervalued. In other words, the earlier bargain opportunity has passed. In the short term, the stock has quickly recovered a substantial portion of the premium associated with its previous undervaluation. From a long-term perspective, the source continues to describe Microsoft as a high-quality company. Azure’s strong growth, Copilot’s progress toward commercialization and restrained spending on AI infrastructure are cited as factors supporting its potential to outperform the market. From a short-term trading perspective, however, the 26% gain over the past two weeks has already pushed the valuation higher after the earlier discount. Expecting another move of the same magnitude in the near term would not be realistic, according to the source’s analysis. The source’s conclusion is that the opportunity has narrowed considerably for investors seeking short-term upside. It says Microsoft has moved from being deeply undervalued to reasonably expensive, making steady growth a more likely way for its value to be realized than another sharp surge. The company’s opportunity has not disappeared entirely, but the moment to buy in at roughly half-price has passed.
The main drivers of the surge were a cheap valuation and reassuring results.
The increase was not simply the result of a blowout earnings report; several factors came together.
Before the earnings release, Microsoft’s valuation had fallen to what appeared to be an unreasonable discount. From early July until the report, its forward price-to-earnings ratio briefly fell below 20 times, the lowest level in several years. Given the quality and growth of Microsoft’s businesses, that valuation appeared notably low, prompting investors to move in quickly after the results were released.
The results themselves provided enough reassurance. Azure revenue grew 43% year over year and continued to expand rapidly. Paid seats for Microsoft’s in-house AI product, Copilot, exceeded 30 million, indicating progress in commercialization.
More importantly, Microsoft kept its full-year capital-spending guidance unchanged. During the same period, Alphabet and another company not identified in the source raised their already-high expectations for data-center spending. As investors worried that AI giants might be overbuilding, Microsoft’s decision not to accelerate further was interpreted as more rational and restrained, helping to bolster confidence.
Microsoft’s valuation is no longer cheap, but it does not appear to be an obvious bubble either.
After the rapid rise, Microsoft’s valuation has returned to a more reasonable range. It remains toward the lower end of its own range in recent years, but compared with some other large technology companies, it is no longer clearly undervalued.
In other words, the earlier bargain opportunity has passed. In the short term, the stock has quickly recovered a substantial portion of the premium associated with its previous undervaluation.
From a long-term perspective, the source continues to describe Microsoft as a high-quality company. Azure’s strong growth, Copilot’s progress toward commercialization and restrained spending on AI infrastructure are cited as factors supporting its potential to outperform the market.
From a short-term trading perspective, however, the 26% gain over the past two weeks has already pushed the valuation higher after the earlier discount. Expecting another move of the same magnitude in the near term would not be realistic, according to the source’s analysis.
The source’s conclusion is that the opportunity has narrowed considerably for investors seeking short-term upside. It says Microsoft has moved from being deeply undervalued to reasonably expensive, making steady growth a more likely way for its value to be realized than another sharp surge. The company’s opportunity has not disappeared entirely, but the moment to buy in at roughly half-price has passed.