Microsoft (MSFT) Could Be 14% Undervalued Following AMD AI Expansion

Microsoft (MSFT) has drawn fresh investor attention after expanding its AI partnership with AMD, committing to deploy the Helios rack scale system on Azure while large enterprise customers ramp up Microsoft 365 Copilot usage.

See our latest analysis for Microsoft.

Microsoft's share price has recently picked up, with a 1-day share price return of 2.15% and a 30-day share price return of 6.03%, although it remains down 14.94% year to date and the 1-year total shareholder return is down 20.50%. This sets a mixed backdrop as investors weigh AI partnerships, Copilot deployments and the upcoming earnings update.

If you are looking beyond Microsoft to see where AI spending could be heading next, this is a good moment to scan 54 AI infrastructure stocks

After a 27% pullback from its peak and a recent uptick in the share price, Microsoft now trades at a sizeable discount to both analyst targets and some fair value estimates. Is the market’s caution on AI spending still warranted?

Most Popular Narrative: 13.7% Undervalued

At a last close of $402.29 versus a narrative fair value of $466, the most followed Microsoft storyline frames the current pullback as a pricing gap rather than a business problem.

"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.

The $466 fair value rests on a tight weave of revenue growth, thick margins and cash generation assumptions that pull in Microsoft’s huge AI related backlog and revised OpenAI economics. Curious how those moving parts combine into that single number and how far earnings could stretch to support it.

Result: Fair Value of $466 (UNDERVALUED)

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

However, this depends on Microsoft containing regulatory pressure and avoiding a prolonged AI infrastructure overspend that could weigh on returns and sentiment.

Find out about the key risks to this Microsoft narrative.

Next Steps

With mixed sentiment around Microsoft, with risks on one side and clear rewards on the other, this is a good time to act quickly and shape your own view by checking the 5 key rewards and 1 important warning sign.

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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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