Forget The S&p 500: Microsoft Remains One Of The Best…
Cloud computing revenue continues to grow
Most of Microsoft’s growth is coming from its cloud computing unit. Revenues from that part of the business were up by 27% year over year in Microsoft’s fiscal 2026 fourth quarter.
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NASDAQ: MSFT
Microsoft
Today’s Change
(0.84%) $4.07
Current Price
$487.31
Key Data Points
Market Cap
$3.6TMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.
Day’s Range
$481.86 – $490.61
52wk Range
$349.20 – $553.72
Volume
17.2M
Avg Vol
39.6M
Gross Margin
67.94%
Dividend Yield
0.93%
This segment has maintained high growth rates for many quarters, and I believe that trend will continue. Artificial intelligence (AI) has boosted enterprise demand for cloud platforms. Competitors Amazon (AMZN +1.33%) and Alphabet (GOOG +0.83%) (GOOGL +0.94%) have reported strong demand for their cloud platforms that continues to accelerate.
Cloud computing operates on a recurring revenue model, and Microsoft’s established customers will have to upgrade their plans as their needs evolve. It’s extremely cumbersome to switch from one cloud platform to another, and it’s not worth the effort if the differences between Microsoft, Amazon, and Alphabet are marginal.
Microsoft continues to enhance its cloud offering to boost retention and attract new customers. Microsoft Cloud provides a broad model catalog of more than 11,000 models. This selection aids customers that want “the right model for each task, based on quality, latency, cost, and compliance,” per the earnings call transcript.
Other business segments are also doing nicely
I still view cloud computing as the major story for Microsoft, and continued growth in this segment will help the tech stock outperform the S&P 500 in the future. It accounted for roughly two-thirds of Microsoft’s revenue in its fiscal 2026 Q4, but the businesses that generated the remaining third of sales still show some upside potential too.
Artificial intelligence has also translated into higher growth rates for Microsoft’s other businesses. LinkedIn and online advertising revenue were up by 12% and 10% year over year, respectively.
Microsoft 365 commercial cloud revenue also rose 16% year over year. The company’s “more personal computing” segment, which includes online ads, Xbox, and Windows OEM and devices, was down by 4% year over year. While I would prefer if every segment were delivering revenue growth, this part of Microsoft’s business only represented 14.3% of total sales.
Microsoft stock may be suffering from the company’s success. While some growth investors are chasing smaller AI stocks in the hopes of more substantial gains, Microsoft steadily delivers better fundamentals each quarter.
Overall revenue and operating income were both up by 18% year over year in the most recent quarter. Those numbers beat most companies in the S&P 500, and to top it off, Microsoft has a lower price-to-earnings (P/E) ratio than the index. These factors explain why I view Microsoft as a better opportunity than the market’s most popular benchmark.
The S&P 500 has a lot of dead weight
It’s not just that Microsoft is a great stock. I also believe investors should look deeper into any index fund or exchange-traded fund they want to buy. For instance, the S&P 500 has recently derived a large portion of its gains from the “Magnificent Seven” stocks, but a closer look reveals many stocks are flat or down this year.
More than 150 S&P 500 holdings are down year to date, while fewer than half of the stocks in this index have a 10% return or higher.
Admittedly, Microsoft is in neither of those categories. It’s up year to date, but not by much. However, Microsoft’s stock price movements have not kept pace with its improving fundamentals. Meanwhile, some S&P 500 stocks are overextended and more vulnerable to future corrections.
Tech stocks Microsoft often do the heavy lifting for the S&P 500, and the stock price should eventually catch up with Microsoft’s fundamental growth. That’s why I Microsoft better than the S&P 500.
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About the Author
Marc Guberti is a Certified Personal Finance Counselor and has been a contributing Motley Fool stock market analyst since 2025. He has written for several finance publications. Marc graduated from Fordham University with a finance degree. He is an avid marathon runner who aims to complete more than 100 marathons in his lifetime. His fastest marathon time is 2:40.
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