![\"Microsoft](\"https:\/\/barchart-news-media-prod.aws.barchart.com\/MKTBEAT\/61713d7899eb676e032450e09ba13e2c\/med_20260324090438_microsofts-next-ai-leg-can-msft-still-outperform-f.png\")
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The first half of 2026 is one that\u00a0Microsoft Corporation (NASDAQ: MSFT)<\/a>\u00a0shareholders would just as soon forget.\u00a0The stock is down approximately 20% as of July 1. As recently as June 24,\u00a0MSFT\u00a0hit\u00a0a 52-week low of\u00a0$349.20.<\/p>\n It\u00a0hasn\u2019t\u00a0all been downhill. But every time it looked like MSFT was getting ready to recover, something happened to knock it back. Nevertheless,\u00a0both fundamental and technical signs, starting with a forward price-to-earnings (P\/E) ratio of 22.9x, suggest\u00a0that Microsoft is due for a reversal. That could make MSFT the best big tech trade for the second half of 2026.<\/p>\n When a Strength Became a Weakness<\/p>\n The size and scope of Microsoft\u2019s business\u00a0have\u00a0worked against it as investors\u00a0have found multiple reasons for concern. In late 2025, investors were concerned that a hyperscaler like Microsoft would pause or reverse course on its data center capital expenditures.<\/p>\n Instead, the company doubled down on its spending and now plans to spend\u00a0$190 billion\u00a0in this calendar year.\u00a0Of course, that turned into a concern that\u00a0Microsoft\u00a0and other\u00a0hyperscalers\u00a0are now spending too much money, which will either hit their free cash flow or show up on the balance sheet as debt\u2014neither of which is positive for earnings\u00a0growth.<\/p>\n Then, the\u00a0“SaaSpocalypse”\u00a0hit. The concern was\u00a0that the emergence of\u00a0open-source\u00a0models like Anthropic and OpenAI would\u00a0reduce demand for Microsoft\u2019s Copilot. However, in its most recent earnings report,\u00a0the company noted that Copilot had over 20 million paid seats.<\/p>\n One of the latest issues\u00a0facing\u00a0the company\u00a0is\u00a0the cost of memory. That\u00a0acutely\u00a0impacts\u00a0Microsoft\u2019s gaming\u00a0division\u00a0and popular Xbox<\/a>.\u00a0It also reminds investors of how interconnected\u00a0all of\u00a0these technology companies are, particularly as it relates to the artificial intelligence (AI) infrastructure trade.<\/p>\n That\u2019s\u00a0a lot of noise for investors to drown out. But for those that can,\u00a0there\u2019s\u00a0a strong case\u00a0for growth in the second half of 2026.<\/p>\n The Numbers Behind the Noise<\/p>\n Let\u2019s\u00a0start with the fundamentals.\u00a0Microsoft\u2019s Q3 2026 earnings report<\/a>\u00a0undercut\u00a0the bear case. Revenue grew 18% year-over-year to\u00a0$82.9 billion, and diluted earnings per share (EPS) rose 23% to $4.27, beating estimates on both lines.\u00a0The\u00a0bull case went beyond the headline numbers:<\/p>\n Microsoft Cloud revenue climbed 29% to\u00a0$54.5 billion, with Azure growing 40% year-over-year, an acceleration from the prior quarter.<\/p>\n Total\u00a0AI annualized revenue run rate surpassed\u00a0$37 billion, up 123% from a year ago.<\/p>\n Operating income rose 20% to\u00a0$38.4 billion.<\/p>\n The company returned\u00a0$10.2 billion\u00a0to shareholders through dividends and buybacks.<\/p>\n None of that sounds like a company in trouble, yet the stock kept sliding after the report.\u00a0However, that disconnect between accelerating\u00a0fundamentals\u00a0and a falling share price is exactly what value-oriented traders look for. It suggests the market\u00a0is pricing in\u00a0a\u00a0worst-case\u00a0scenario\u00a0that\u00a0isn\u2019t\u00a0backed up by\u00a0the numbers.<\/p>\n MSFT Shows Signs of a Tepid Recovery<\/p>\n The chart backs up the reversal thesis. MSFT fell from a 52-week high near $555 in October to the June 24 low of $349.20, a decline of\u00a0roughly 37%.<\/p>\n The RSI sits at roughly 47, climbing back from oversold territory below 30 in April. That April dip marked the stock’s sharpest capitulation, followed by a rally above $460 in May before renewed selling pressure returned.<\/p>\n Some of that selling pressure is due to a slowdown in institutional buying<\/a>. To be clear, institutional buying outweighs selling by over 3:1. But\u00a0it slowed\u00a0down in the first two quarters of the year, which has given sellers the upper hand.<\/p>\n That shows up in the\u00a0Chaikin Money Flow (CMF)\u00a0indicator. This\u00a0quantifies\u00a0money\u00a0flowing\u00a0into or out of a security\u00a0over a set period, typically 20 or 21 trading days.\u00a0The\u00a0reading\u00a0of -0.04 is\u00a0essentially neutral\u00a0after spending most of April through June\u00a0in\u00a0a downtrend. A shift into positive CMF readings would confirm institutional money is rotating back into the stock.<\/p>\n Shares jumped 3% on July 1, closing at $384.28 on volume of 47.23 million shares, a sign of renewed interest after weeks of drifting lower. A close above the $400 level, which has capped rallies since March, would be the clearest signal yet that the reversal is underway.<\/p>\n The Bear Case Still Deserves a Hearing<\/p>\n No trade is without risk. Capital expenditures, including finance leases, hit\u00a0$31.9 billion\u00a0in the quarter, up 49% year-over-year, and free cash flow fell 22% to\u00a0$15.8 billion\u00a0as a result. If AI\u00a0demand\u00a0growth slows, that spending\u00a0will make MSFT more of a margin story than it already may be.<\/p>\n Plus, the rising memory prices\u00a0may not be critical, but they\u00a0are squeezing\u00a0the More Personal Computing segment, where Xbox hardware revenue fell 33%. If costs remain elevated into the holidays, that pressure could spread further, despite the company\u2019s recent layoff announcement aimed at addressing some of that inefficiency.<\/p>\n Why the Setup Favors Patient Buyers<\/p>\n Investors need to\u00a0weigh the risks against the valuation<\/a>. Through that lens,\u00a0Microsoft still looks attractive. A forward P\/E near 23x sits below the stock’s five-year average and well under high-flying peers like\u00a0NVIDIA (NASDAQ: NVDA)<\/a>\u00a0and Palantir (NASDAQ: PLTR)<\/a>, despite Microsoft posting some of the most durable growth in the group.<\/p>\n For investors willing to look past near-term volatility, the combination of accelerating AI revenue, a 20-million-seat Copilot business, and a technical setup stabilizing after a brutal correction makes\u00a0MSFT worth watching closely<\/a>\u00a0as the second half of 2026 gets underway.<\/p>\n Before you make your next trade, you’ll want to hear this.<\/p>\n MarketBeat keeps track of Wall Street’s top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.<\/p>\n Our team has identified the five stocks<\/a> that top analysts are quietly whispering to their clients to buy now before the broader market catches on… and none of the big name stocks were on the list.<\/p>\n They believe these five stocks are the five best companies for investors to buy now…<\/p>\n![\"MSFT](\"https:\/\/barchart-news-media-prod.aws.barchart.com\/MKTBEAT\/61713d7899eb676e032450e09ba13e2c\/med_20260701161657_msft2.png\")
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