The Best AI Growth Stock on Nasdaq: Why Morningstar Still Sees Microsoft as Undervalued
By Robert Izquierdo | April 25, 2026
In early 2026, tech stocks saw a sharp change. AI stocks once soared but then cooled quickly. Wall Street shifted its focus from high-growth tech stocks to other areas. This shift, called the "Great Rotation", pushed the Nasdaq Composite into correction during the first quarter.
Even while many sold off, Microsoft (NASDAQ: MSFT) stood clear. Investors worry about its high capital spending. Still, Morningstar finds Microsoft nearly 38% undervalued, using a fair value estimate of $600. This view makes Microsoft an attractive AI growth stock to buy and hold.
Understanding the Market Context
The "Great Rotation" arose from market fears. Big players, like Microsoft, raised their capital spending. This spending made investors uneasy. Shares dropped over 10% year-to-date until April 21. On March 30, Microsoft hit a 52-week low of $356.28. Microsoft reported $37.5 billion in capital spending in its fiscal Q2 ending December 31. That number marks a 66% rise from the previous year. Many investors saw this surge as a sign that higher costs could hurt profits.
Why Microsoft’s Capital Expenditures Make Strategic Sense
The rising spending supports Microsoft’s drive in AI. A large part of the money funds upgrades to its cloud infrastructure. The old system struggled with modern AI workloads. Today, Microsoft is the world’s second-largest cloud provider, coming in only behind Amazon.
To lead in AI, Microsoft needs a modern, powerful cloud system. Almost 45% of its remaining performance comes from OpenAI. OpenAI, which created ChatGPT, made about $1 billion a quarter in 2024. Today, it earns roughly $2 billion a month. Even if one customer brings some risk, this growth shows why the partnership matters.
Strong Financial Performance Underlines Growth Potential
Microsoft’s financial results remain robust. Its fiscal Q2 revenue rose 17% year-over-year to $81.3 billion. The cloud segment generated $32.9 billion, up 29% in sales. Microsoft’s gross margin improved by 16%, and net income jumped 60% year-over-year to $38.5 billion.
These numbers suggest that investing in AI and cloud infrastructure pays off. With a forecast that the AI market will grow from $335 billion in 2026 to $1.3 trillion by 2032, Microsoft is well-placed to benefit.
Valuation Snapshot: A Multiyear Buying Opportunity
Recent market worry pressed Microsoft’s share price lower. Its price-to-earnings ratio dropped below levels seen in previous years. This lower valuation offers a chance for long-term investors.
Morningstar finds that current prices do not capture Microsoft’s true long-term growth and inherent value. A recent rise in its earnings multiple hints that the broader market is beginning to see this undervaluation.
Conclusion
Microsoft stands out as a strong AI growth stock on Nasdaq. Although recent market shifts have put pressure on its share price, its fundamentals remain sound. Strategic capital investments in cloud upgrades and a key role in AI innovation—with OpenAI as a major partner—point to long-term growth.
For investors who want a mix of scale, innovation, and solid financials in AI, Microsoft is a compelling buy in 2026. —
About the author:
Robert "Izzy" Izquierdo is a contributing analyst for The Motley Fool, specializing in technology and consumer sectors. He brings experience in software product management and holds a bachelor’s degree in English literature from UCLA.
The Motley Fool holds positions in Microsoft and Amazon and maintains a disclosure policy regarding ownership and recommendations.
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