Does Microsoft Deserve Its Decade-Low Multiple?

"Microsoft ( NASDAQ:MSFT | MSFT Price Prediction) has integrated artificial intelligence (AI) into its products more extensively than most of its peers, with tools like Copilot embedded across its software suite and its Azure AI infrastructure sold out in key regions. Bullish analyses often focus on its potential to monetize Copilot through paid upgrades, but current adoption remains low at 3.3% of its user base."

"Microsoft 365 Copilot is available to over 450 million commercial paid seats - or the number of authorized users or devices allowed to access a software application - providing a built-in platform for AI features like document summarization and data analysis in apps such as Word and Excel. This entrenchment positions Copilot for widespread use, with 15 million paid seats reported in January, reflecting 160% year-over-year growth."

"Azure's AI infrastructure is experiencing high demand, with capacity sold out as demand backlog has doubled to $625 billion, partly driven by OpenAI-related commitments. Azure revenue grew 39% in the fourth quarter. However, the sold-out status stems more from supply constraints than unlimited demand. These include power shortages, equipment delays, and physical limits on data center expansion, with Microsoft acknowledging that constraints will persist at least through the end of its fiscal year in June."

Microsoft has integrated AI across its product suite, embedding Copilot in Microsoft 365 and adding Copilot capabilities to Azure. Microsoft 365 Copilot reaches over 450 million commercial paid seats, with 15 million paid seats reported in January and 160% year-over-year growth. Azure demand is high, with a backlog that doubled to $625 billion and Azure revenue up 39% in the fourth quarter. The sold-out capacity largely reflects supply constraints—power shortages, equipment delays, and data center expansion limits—that are expected to persist through June. Microsoft shares are down 17% year-to-date and trade below a 25 price-to-earnings ratio.

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