Microsoft (NASDAQ:MSFT) 2026 is a tough year. Its shares are down more than 25% from their October highs, with most of the decline occurring in 2026. It’s unusual for an established tech company like Microsoft to drop so sharply, and even rarer that it happens for no apparent reason.
This presents an excellent buying opportunity in one of the most dominant technology companies. I think an investment now can help prepare you for life because it can provide market-beating returns for years to come.
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The gold standard for comparing individual investment performance is S&P 500 Index. If you beat the S&P 500, you’re doing well. Historically, the S&P 500 has returned about 10% annually. So if you invest $500 per month in the S&P 500 and compound interest over 29 years, congratulations, you are a millionaire.
Now, what happens if you can beat the S&P 500 by three percentage points every year? Okay, now you shorten that to 25 years. While that may not sound like a lot, if you extend that 13% return to 29 years, the difference becomes even more pronounced. After 29 years, a 10% return would be $1.017 million, while a 13% return would be $1.915 million. That’s almost twice as much money, so finding stocks that consistently beat the market can be a successful investing strategy.
A big part of that is finding stocks that are selling for no reason. I believe Microsoft falls into this category.
Its underlying software business continues to thrive, as does its approach to artificial intelligence (AI). Microsoft plays more of an AI facilitator role and offers a variety of different generative AI models on its cloud computing platform Azure. Azure also continues to grow rapidly and has a large backlog of workloads trying to come online.
In the second quarter of fiscal 2026 (FY) (ended December 31), Microsoft’s revenue grew an impressive 17% year-over-year. This doesn’t sound like a company worth falling more than 25% from its all-time high, especially when it doesn’t have a premium valuation.
Microsoft currently trades at 24 times forward earnings, its lowest level in the past three years. It’s also not far off from the S&P 500’s forward P/E ratio, which trades at 21.9 times earnings.
