With Microsoft (MSFT) poised to generate tremendous revenue from the top two artificial intelligence startups, MSFT stock is a buy at this point for investors looking for increased exposure to AI and/or Big Tech.
Among the other important, positive attributes of MSFT stock are its strong financial results, its relatively low valuation, its high exposure to software, and its low risk,
About Microsoft
One of the world’s leading software makers, MSFT markets the Windows operating system, along with the Office suite of software. The firm also provides cloud services through its Azure unit.
Although the tech giant has a huge market capitalization of $3.5 trillion, its forward price-earnings ratio is a relatively low 29.8 times, while its trailing P/E ratio is just under 33 times.
In Microsoft’s fiscal first quarter that ended in September, its revenue climbed 18% versus the same period a year earlier to $77.7 billion, while its operating income jumped 24% year-over-year to $38 billion.
Suggesting that the name can rise a great deal in the longer term, its Relative Strength Index was just 32 as of Nov. 25.
The Implications of MSFT's New Deal With Anthropic
Under the deal between Microsoft, Anthropic, and Nvidia (NVDA) announced on Nov. 18, Anthropic agreed to spend $30 billion on MSFT’s “compute capacity,” along with obtaining up to 1 gigawatt of additional computing power from the tech giant. Further, Nvidia will invest as much as $10 billion in Anthropic, and MSFT will provide the startup with up to $5 billion. Also noteworthy is that “Anthropic will scale its Claude AI model on Microsoft Azure, powered by NVIDIA technology.”
Although Microsoft has made some minor deals with Anthropic in the past, this appears to be the first time that the two firms have signed major, multibillion dollar contracts. And as a result of these agreements, the tech giant’s cloud unit is likely, for the foreseeable future, to get large amounts of revenue from the two hottest, biggest startups in the AI space: Anthropic and OpenAI. Those revenue streams should help enable MSFT’s Azure to continue growing very rapidly in the longer term. (MSFT’s sales from Azure “and other cloud services” jumped 40% year-over-year in MSFT’s Q1).
In the first three quarters of 2024, MSFT obtained about $866 million of “revenue share payments” from OpenAI. On Oct. 29, 2025, Microsoft disclosed that the startup, in which MSFT has invested over $13 billion, agreed to buy “an incremental ($250 billion) of Azure services.”
Given the tremendous achievements and huge growth opportunities of both Anthropic and OpenAI, MSFTs’ deals with both firms should enable Azure to continue growing very rapidly for the foreseeable future, boding very well for the overall outlook of MSFT stock.
Low Valuation, High Exposure to Software, and Low Risk
Despite MSFT’s powerful growth and its opportunity to benefit tremendously from the ongoing AI Revolution, the stock’s trailing P/E ratio of 33x is only slightly more than 10% above the S&P 500 Index’s ($SPX) average P/E ratio of 29.7 times. Further, unlike Nvidia, which obtains most of its revenue from hardware, Microsoft gets the lion’s share of its revenue from software. In comparison to hardware, software tends to be more profitable and is less apt to be commoditized. Indeed, Azure’s market share has held steady in the 20% to 25% range for the last few years.
In light of the low valuation of MSFT stock, the steady market share of Azure, the continued high market share of Windows and Office globally, and the company’s deals with OpenAI and Anthropic, I believe that MSFT poses little risk to investors.
And all in all, MSFT stock seems to be the ultimate growth-at-a-reasonable-price (GARP) stock.
On the date of publication, Larry Ramer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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