Forget the S&P 500: Microsoft Remains One of the Best Stocks to Own

While the S&P 500 has seen a 10% increase this year, Microsoft has also experienced significant growth. Microsoft's cloud computing division, responsible for the majority of its recent gains, grew by 27% year-over-year in the fourth quarter of its fiscal 2026. This growth is attributed to the increasing demand for cloud platforms driven by the rise of artificial intelligence (AI).

Microsoft's AI implementation has contributed to higher growth rates across its other business units, including LinkedIn, online advertising, and 365 commercial cloud revenue. Although personal computing segment (including Xbox and Windows) saw a 4% decline, it still accounts for only 14.3% of total sales. Microsoft's cloud offerings provide a recurring revenue model, which incentivizes customers to continue using their services as their needs evolve.

The company's established customer base makes it difficult to switch to competing platforms, further solidifying Microsoft's position in the market. Microsoft's fundamentals, including revenue and operating income growth, continue to outperform many of its competitors in the S&P 500. Despite its strong performance, Microsoft's stock price has not kept pace with its improving financials.

This discrepancy highlights the potential for continued growth in the near future. While some S&P 500 stocks are underperforming, Microsoft's lower price-to-earnings (P/E) ratio compared to the index makes it an attractive option for investors seeking long-term growth.