Are Bearish Investors Wrong About Microsoft Stock?

Key Points
Concerns about slowing Azure growth have been weighing down Microsoft's stock.
The stock's valuation is now in line with the S&P 500 average.
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Microsoft (NASDAQ: MSFT) stock has taken quite a turn over the past six months, losing nearly 30% of its value during that time frame. What was once seen as a safe, hot tech stock to own has recently become anything but that. It's trading near its 52-week low and is nowhere near the $555.45 high it hit last year.
There's plenty of bearish sentiment surrounding the stock, despite the business still seeming to be doing well and having solid financials. Are investors all wrong about Microsoft stock, and could this be a great time to add it to your portfolio?
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Are concerns about slowing Azure growth overblown?
Microsoft isn't what you might consider a growth machine. It generates decent growth, but typically it's less than 20%, which is still strong for a company of its size and stature. But one area that has been a bright spot for growth investors has been its cloud computing platform, Azure.
Investors, however, have been growing concerned of late about the slowing growth in Azure. In the company's most recent quarter, which ended on Jan. 28, Azure sales were up 39% -- that's down from 40% growth in the previous quarter. Rewind five years ago, and the company's growth rate for Azure was 50%.
It may seem troubling, but the reality is that sustaining such a high growth rate is difficult for any business to do. A single point drop from the previous quarter does appear to be a significant overreaction by the market. But that can be great news for you, if you're willing to buy and hold for the long term.
Microsoft's stock looks incredibly cheap right now
Microsoft is a stock I'm watching closely these days because it is becoming increasingly undervalued. The lower it goes, the more of a deal it can become for the long term. Right now, it's trading at 23 times its trailing earnings, which puts it in line with the average S&P 500 stock. It warrants a higher valuation, and I don't think it would be a bad move to buy Microsoft stock on weakness right now.
Its market cap is around $2.8 trillion, and it's still one of the largest tech companies in the world. And with Microsoft generating more than $119 billion in profit over the trailing 12 months and having tremendous long-term growth opportunities due to AI, it may prove to be a steal of a deal in the long run.
I think bearish investors are wrong about the stock and may be too focused on a single metric (Azure growth) to see the big picture: the tech giant is trading at just an average valuation. At its current price, Microsoft's stock has significant upside potential.
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David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.