Bill Ackman Is Loading Up on Microsoft Stock, Here’s What the Hedge-Fund Billionaire Likes

Billionaire investor Bill Ackman disclosed that his Pershing Square hedge fund has acquired a $2.1 billion stake in Microsoft (MSFT), the name behind the Windows operating system and the Azure data-center business, according to filings with the Securities and Exchange Commission. Ackman believes the stock is significantly undervalued given the strength of its businesses.

Pershing Square’s buys came as Microsoft’s shares declined significantly in early 2026. The pullback was largely due to souring market sentiment over the Iran war, and investor worries about the threat posed by artificial intelligence (“AI”) companies such as Anthropic to the software industry.

To fund the new Microsoft shares, Ackman sold down his position in Alphabet (GOOGL), which has had a nice run over the past year and now sits near its 52-week high.

So, why exactly did Ackman amass a huge position in Microsoft?

Ackman took to the social-media platform X (formerly Twitter) to lay out his investment case directly, pointing to Microsoft’s “compelling valuation” and two key businesses, which account for about 70% of the company’s total profits.

[Microsoft 365] M365, the company’s productivity suite, is the dominant operating platform for knowledge work, with over 450 million workers using Word, Excel, PowerPoint, Outlook, and Teams on a daily basis.

Azure is the world’s second-largest hyperscaler cloud platform and, like [Amazon Web Services] in our Amazon investment, is a direct beneficiary of the multi-decade migration of enterprise IT workloads to the cloud, which is now further accelerated by surging demand for AI inference workloads.

While those are good businesses now, investors have been fretting about the future competitive position of these franchises as AI quickly develops. But Ackman suggests why investors should expect Microsoft to be more resilient in the face of competition. He contends that Microsoft 365 is integrated well into its customers’ businesses, giving it further resilience.

Ackman notes, “M365 is tightly integrated into the daily workflow of nearly every large enterprise and is supported by Microsoft’s identity, security, compliance, and data governance infrastructure, which would be nearly impossible to replicate.”

The Azure data-center business is also expected to be a huge driver of future profits, though some worries have emerged recently.

Microsoft’s Azure Data-Center Business: ‘Exceptional Performance’

One of investors’ biggest concerns surrounds Microsoft’s Azure data-center unit, since that’s key to its AI ambitions. Azure has been a fast-growing business for years, but a recent restructuring of a distribution deal with OpenAI has led some to question Azure’s future growth.

In April, Microsoft renegotiated its exclusive rights to sell OpenAI’s models, allowing OpenAI to pursue distribution deals with other AI data-center businesses, such as Amazon (AMZN). Some investors saw this move as a positive for OpenAI and a hit to Azure, which provides computing resources to the company. Microsoft owns 27% of OpenAI.

Ackman sees things differently, however, pointing out Azure’s 39% revenue growth last quarter. He says that Microsoft’s shift to a multimodel approach works better for its business customers.

Microsoft recently disclosed that over 10,000 enterprise customers have used more than one model on Azure Foundry, the company’s modular AI model marketplace. This model-agnostic approach also strengthens Copilot, which can auto-route queries across multiple models to deliver the optimal output for a given task.

Microsoft continues to rapidly invest in its Azure AI data centers, recently announcing that it would expand its total capital investment budget to $190 billion in 2026. That’s a 61% increase from 2025, in part due to soaring memory costs.

This increased spending will help Microsoft respond to the intense demand for computing resources from OpenAI and Anthropic, which are in a race to secure future resources. That’s good news for Azure as well as Amazon Web Services and other AI data-center businesses.

Is Microsoft’s Stock Undervalued?

Let’s compare Microsoft with some of its major Magnificent 7 rivals, such as Alphabet and Amazon, to see whether the stock looks undervalued and by how much.

Source: Yahoo Finance, as of May 18, 2026

Analysts expect Microsoft to earn $16.85 per share on average in its current fiscal year, which ends in June. At its recent price of $421.92, Microsoft has a forward price-to-earnings (P/E) ratio of 25, which falls somewhat in the middle of the other P/E ratios here.

The forward P/E ratios range from a low of 18.7 at Meta Platforms to a high of 34.3 at Apple, with the average P/E on this list (excluding Microsoft’s) coming to 27.9 times earnings.

So, what would Microsoft’s price be if it had the average P/E ratio? In this case, Microsoft would have traded for about $470 per share, for an upside of around 11%. That’s not especially interesting.

However, Microsoft’s fiscal year ends in June, so the 2026 estimates really include only one more quarter, the current quarter, unlike the other estimates. So, let’s look at the 2027 estimates to get a better idea of what Microsoft could earn in the year ahead. On this measure, analysts expect the company to earn $19.37 per share, representing about a 15% year-over-year increase.

After reworking the calculation, it looks like Microsoft is trading at about 21.8 times its 2027 earnings. If it traded at the average forward P/E of 27.9, the stock would be priced around $540. That would put the stock’s upside at about 28% – a much more interesting outcome for investors.

If Microsoft’s stock could reach Amazon’s P/E on its 2027 estimate, its price would be about $595. That would imply a gain of almost 41% from the recent price of $421.92.

A 30.7 forward P/E ratio is hardly unreasonable, since Microsoft’s stock already traded above this multiple on its 2026 earnings estimate late in 2025 and early this year.

If Ackman’s right, Microsoft investors have some serious upside from here. But they may have to get over their anxiety about Anthropic wiping out the software sector first.

Regards,

James Royal, Ph.D.

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