I Was Wrong About Microsoft Stock. The Great Rotation Changed Everything.

Key Points
The “Great Rotation” is shifting capital toward tangible, cash-generating sectors, making today’s Microsoft an attractive long-term opportunity.
Massive AI spending and near-term margin pressure spooked investors, but the underlying business, including Azure and enterprise demand, remains strong.
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I didn't see this Microsoft (NASDAQ: MSFT) stock sell-off coming, at least not the nearly 30% share price drop in the last six months.
Like many investors, I spent the better part of 2024 and early 2025 believing Microsoft stock was essentially untouchable. I didn't buy any while it ran up more than 80% during that time, and thought I had missed the bus. The company took a stake in OpenAI, was embedding Copilot across its entire product suite, and was generating cash flows that most businesses only dream about. The Azure cloud business was growing. Then 2026 hit, and the stock plunged in the first quarter, marking its steepest drop since the 2008 financial crisis.
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What the market got wrong about Microsoft
I, along with the rest of the market, underestimated how much of Microsoft's valuation was built on a story rather than a timeline. Subjectively, it seems like investors were pricing in frictionless, high-margin artificial intelligence (AI) growth. What they got instead was the reality of a capital expenditure arms race.
Microsoft is expected to spend $146 billion on AI infrastructure in fiscal 2026. Quarterly capital expenditures nearly doubled year over year to $29.9 billion. And the company's OpenAI investment losses reached $3.1 billion in a single quarter, up from $523 million a year earlier.
Microsoft still beat earnings estimates. It didn't matter. The market wasn't grading the company on what it delivered last quarter; it was reassessing whether the math on AI investment would ever yield the margins investors were expecting. That's a very different question, and the market didn't take it seriously enough.
Why I'm chomping at the bit to buy in
After the sell-off, Microsoft isn't being priced for perfection anymore. The multiple has compressed meaningfully, sentiment has cooled, and expectations around AI have shifted from hype to scrutiny. That's exactly the kind of reset long-term investors should pay attention to.
At the same time, the "Great Rotation" is real. Capital has been flowing out of mega-cap tech and into more cyclical, asset-heavy sectors like industrials, energy, and materials, as investors prioritize near-term cash flows and tangible demand over long-duration growth narratives.
But the underlying business for Microsoft didn't break. Azure is still growing, enterprise demand hasn't disappeared, and Microsoft remains deeply embedded across global IT infrastructure. I do not see that changing. What changed is the market's willingness to give it the benefit of the doubt up front.
Ironically, the same factors that drove the stock down (massive AI spending, near-term margin pressure, and uncertainty around returns) are also what make this moment compelling. If even a portion of that $100-plus billion investment translates into durable revenue streams, today's concerns start to look like growing pains.
Microsoft is no longer a story stock. It's a world-class business being repriced in real time. And that's why, for the first time in a while, I don't feel like I missed the bus. I want to see this ticker get lower. Investors are finally getting a shot at a better entry point that will allow them to tap into long-term growth.
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Micah Zimmerman 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.