Wall Street Is Wrong About This AI Cloud Stock for 2026

Key Points
AI demand has already accelerated Azure growth.
Microsoft is monetizing AI beyond cloud infrastructure through rapidly growing Copilot subscriptions.
The company enjoys significant pricing power in the enterprise AI space.
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Shares of Microsoft (NASDAQ: MSFT) are down almost 18% so far this year. Wall Street has grown cautious about this cloud giant, as investors question whether its massive investments in artificial intelligence (AI) infrastructure will translate into faster Azure growth and near-term returns.
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That concern intensified after Microsoft reported capital expenditures of $37.5 billion for the second quarter of fiscal 2026 (ending Dec. 31, 2025). Of this, around two-thirds was spent on short-lived assets such as graphics processing units (GPUs) and central processing units (CPUs).
However, focusing only on Azure's near-term growth rate misses the big picture. Microsoft is increasingly monetizing AI across multiple products, including Microsoft 365 Copilot, GitHub Copilot, and its Azure AI development platforms. As AI adoption accelerates, the company may benefit from top- and bottom-line expansion.
AI driving cloud growth
Azure was the second-largest cloud infrastructure provider, with a worldwide market share of 21% at the end of 2025. The company's latest results also show how strongly AI demand is already supporting its cloud business. In the second quarter, Microsoft Cloud revenue grew 26% year over year to $51.5 billion. However, Azure and other cloud services, part of the Microsoft Cloud segment, saw revenue grow 39% year over year, driven by strong demand for AI and cloud workloads.
Chief Financial Officer Amy Hood also noted that if all the company's GPU capacity were allocated solely to Azure, the growth metric would have exceeded 40%. Instead, Microsoft has directed a portion of its computing capacity toward products such as Microsoft 365 Copilot and GitHub Copilot.
Microsoft is also positioning Azure as a platform for building AI applications. Services such as Azure AI Foundry and Microsoft Fabric allow companies to deploy models, connect them to enterprise data, and build automated agents that can perform tasks across workflows.
Hence, the impact of AI investments cannot be evaluated solely through Azure's growth rate. The company's cloud infrastructure already supports a broad AI ecosystem, including enterprise software, developer tools, and productivity platforms.
Accelerating AI monetization
Microsoft's AI monetization strategy is gaining momentum. The company exited the second quarter with around 15 million paid Microsoft 365 Copilot users, up over 160% year over year. GitHub Copilot has also reached 4.7 million paid users, up 75% year over year. These subscriptions generate recurring and high-margin software revenue for the company.
Microsoft's growing influence in enterprise software is also giving it pricing power. The company recently introduced a new premium Microsoft 365 tier called Microsoft 365 E7, which bundles Copilot AI capabilities with identity, security, and agent governance tools. The plan costs $99 per user per month, nearly 65% more than the E5 tier.
Microsoft has also introduced some licensing changes, including removing some discounts from enterprise agreements, bundling Copilot into E3 and E5 tiers, and increasing unified support pricing. Independent licensing specialist US Cloud estimates that these moves could raise costs for a typical enterprise agreement by as much as 25% by mid-2026. While some critics describe this as an "AI tax" on IT budgets, it also highlights Microsoft's ability to pass on some of the costs of its AI investments on to customers.
While higher capex may raise near-term concerns, Microsoft appears well-positioned to benefit from rising demand for AI-powered cloud services.
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Manali Pradhan, CFA 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.