Is Microsoft (MSFT) Undervalued After Its Latest Layoffs And AI Spending Shift?

Microsoft (MSFT) is preparing another round of layoffs affecting less than 2.5% of its global workforce, as the company trims costs and shifts resources toward high capital expenditure AI projects and cloud infrastructure.

See our latest analysis for Microsoft.

Microsoft’s share price has fallen 17.15% over the past 30 days and is down 21.13% year to date, even though the 5 year total shareholder return of 39.99% still points to a much stronger long term record. This suggests momentum has clearly cooled as investors reassess heavy AI capex and the latest layoffs alongside new Azure and Copilot partnerships.

If you are weighing how Microsoft’s AI pivot compares to other opportunities, this is a useful moment to scan the market for AI infrastructure plays and see which ones are holding up better, starting with 51 AI infrastructure stocks

After a 23.6% decline over the past year and a current price of US$373.02, Microsoft now trades at a discount to some valuation models and analyst targets. This raises a core question: is this a reset that creates a buying opportunity, or are markets already pricing in future growth?

Most Popular Narrative: 20% Undervalued

At a last close of $373.02 versus a narrative fair value of $466, the most widely followed view on Microsoft frames the recent share pullback as a discount on long term cash generation rather than a warning sign.

"The base case improved because the earnings power got bigger, operating margin held around 46%, and the contracted backlog provides multi-year visibility I could not give credit to before. The bear case got worse because the regulatory environment is more hostile, the OpenAI exclusivity has loosened, and the 99% RPO growth headline needs OpenAI context."

Read the complete narrative.

This narrative leans on a powerful combination: strong profitability, thick margins, and a sizeable contracted backlog feeding into a detailed cash flow model that sets fair value well above today’s price while still allowing for meaningful bear case pressure.

Result: Fair Value of $466 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, this underpriced narrative for Microsoft still relies on heavy AI and cloud capital spending converting as planned, and on regulatory pressures not tightening materially.

Find out about the key risks to this Microsoft narrative.

Next Steps

With sentiment on Microsoft clearly split between concern and optimism, this is a good time to review the data yourself and weigh both sides, starting with 5 key rewards and 1 important warning sign.

Looking for more investment ideas beyond Microsoft?

If you are reassessing Microsoft and want fresh options, now can be a time to scan curated stock ideas that match different risk, income, and quality profiles.

• Explore potential mispricing by reviewing companies that appear attractively valued on fundamentals using the 43 high quality undervalued stocks.
• Strengthen your income stream by focusing on reliable payers featured in the 10 dividend fortresses.
• Prioritize resilience and capital protection by starting with the 74 resilient stocks with low risk scores.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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