We just covered Harvard University Stock Portfolio 2026: Top 10 Picks. Microsoft (NASDAQ:MSFT) ranks #2 (see Harvard University Stock Portfolio 2026: Top 5 Picks).
Harvard’s Stake: $189,921,271
Microsoft (NASDAQ:MSFT) is down about 15% so far this year. The biggest overhang is the impact of AI on software.
The key fear is straightforward. If AI tools like Claude, ChatGPT, and others can do everything, why would companies still pay for Microsoft software? That is the question weighing on the stock.
There is a second fear, too. Microsoft (NASDAQ:MSFT) may need to integrate powerful external AI models into its products. Every time a user interacts with Copilot, Microsoft may have to pay for tokens consumed from AI providers. This cuts into margins. The more AI is used, the more it costs Microsoft.
However, there are strong reasons to believe Microsoft (NASDAQ:MSFT) can fight back. The company has unmatched penetration in the enterprise. Every major company in the world runs on Microsoft software — Word, Excel, Teams. That does not go away overnight.
Management is also working on its own AI models. They expect to launch internal models by 2027. If successful, this would significantly reduce the cost of running AI inside Microsoft’s products and help protect margins.
Azure is another major catalyst. In the latest quarter, Azure grew 40%. This is critical. Even if Microsoft loses some ground on the software side, companies still need Microsoft’s cloud infrastructure to deploy AI. Azure wins either way.
Amid all the fear, the stock has de-rated sharply. Microsoft’s (NASDAQ:MSFT) PEG ratio currently sits at around 1.53, which is approximately 16% below its 10-year median of 1.82. A PEG ratio measures how much you are paying for a company’s growth. The lower it is, the cheaper the stock is relative to its earnings growth. For a company growing revenue at 15% and EPS at 18%, this valuation looks very attractive. The article describes it as the cheapest valuation in a decade — the fear is already priced in.
Impax Global Environmental Markets Fund stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q1 2026 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) (Cloud Computing, US) sold off as investors expressed worries about AI-related infrastructure spending and companies’ ability to monetise these investments. The market responded poorly to results, despite Microsoft delivering another very strong quarter with top and bottom-line beats (Click Here to Read the Letter in Detail).”
Photo by Microsoft 365 on Unsplash
While we acknowledge the risk and potential of MSFT as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MSFT and that has 10,000% upside potential, check out our report about the cheapest AI stock.
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