Microsoft Just Opened Doors at the Most Powerful AI Data Center in the World. What Does That Mean for MSFT Stock?

Shortage of transformers and switchgears, among other things, is set to delay the deployment of at least half of the U.S. data centers planned for 2026. Companies are finding it increasingly challenging to execute their AI infrastructure plans, realizing that the reality of physical buildout is different from the hype. Microsoft (MSFT) CEO Satya Nadella’s announcement that the company’s Fairweather data center in Wisconsin had gone live ahead of schedule was therefore met with a lot of excitement, helping MSFT stock register a nearly 5% single-day gain.

The Fairweather data center in Wisconsin is expected to reach a capacity of 3.3 GW by the end of 2027. It is connected to the data center in Atlanta, just one in a series of many future data centers that the company intends to operate. So far, the management has done a good job of securing the required supply chains to ensure no delays happen at a time when the rest of the industry is dealing with severe shortages. 

About Microsoft Stock

Microsoft is a global technology company that develops and sells a wide range of software, cloud services, devices, and business solutions, serving both individual users and enterprise customers worldwide. The company operates through three segments: Productivity and Business Processes, Intelligent Cloud, and Personal Computing. Its flagship products include Windows, Microsoft 365, Azure, LinkedIn, and Xbox. 

The S&P 500 ($SPX) gained around 35% over the past year, while Microsoft delivered a more modest 17% return during the same period. So far this year, the stock has given up all of last year's gains, whereas the broader market has remained positive, rising more than 4%. Things are improving, though, with the stock registering a 16% gain over the last five trading sessions.

As a result of the software stocks carnage in February and the Iran war in March, the stock had lost a quarter of its value. This made it cheap on various metrics. For example, with the DCF-based intrinsic value of the stock lying at around $392, it traded below this level for over three weeks. For context, the five-year average overvaluation lies around 13%! Even at the current overvaluation of 6%, the stock is cheap compared to historic valuations.

On a forward P/E basis, the multiple of 24.54x is 22% cheaper than the five-year average forward P/E of 31.33x. Similar discounts can be seen across the forward price-to-book, forward price-to-cash flow, and forward EV/EBIT multiples, among others. The stock continues to trade at a discount while delivering projects on time in a supply crunch situation. This is extremely bullish for the stock, and the price appreciation is reflecting that.

Microsoft Posts a Strong Quarter

Microsoft posted its second-quarter FY 2026 results on Jan. 28. Revenue for the quarter reached $81.3 billion, representing a 17% growth. Earnings per share came in at $4.14, marking a 24% increase. Operating income grew 21%, and gross margin dollars rose 16%. Cash flow from operations was $35.8 billion, and free cash flow stood at $5.9 billion. Through dividends and share buybacks, Microsoft returned $12.7 billion to shareholders.

As per guidance, the company expects third-quarter revenue between $80.65 billion and $81.75 billion, reflecting growth of 15% to 17%. As for the various segments, Productivity and Business Processes revenue is projected between $34.25 billion and $34.55 billion. Microsoft 365 Commercial Cloud revenue is expected to grow 13%-14%. Dynamics 365 is estimated to deliver growth in the high teens. Intelligent Cloud revenue is forecasted to be between $34.1 billion and $34.4 billion, and More Personal Computing revenue is projected to come in anywhere from $12.3 billion to $12.8 billion. 

What Analysts Are Saying About MSFT Stock

Ahead of Microsoft’s earnings report, TD Cowen analyst Derrick Wood lowered the firm’s price target on the stock from $610 to $540 while maintaining a “Buy” rating on April 16. A day earlier, Robert W. Baird analyst William Power also cut the firm’s price target on the shares from $540 to $500 while keeping a “Buy” rating. The recent analyst sentiment shift before the earnings report signals a softer quarter ahead. 

The 49 Wall Street analysts who currently cover MSFT stock have a consensus “Strong Buy” rating. Based on analyst estimates, the stock has a mean price target of $582.38, which suggests an additional 36% upside from the current levels.