Morningstar Calls Microsoft 38% Undervalued Amid $37.5B AI Capex Surge

Technology stocks faced a recent downturn, with the tech-heavy Nasdaq Composite entering correction territory. This shift saw many investors moving away from the sector, particularly scrutinizing companies with high capital expenditures, or capex, which are investments in long-term assets like infrastructure.

Microsoft, however, stands out in this climate. Morningstar projects the company's fair value at $600, indicating its shares are currently 38% undervalued. This assessment follows a period where Wall Street reacted to Microsoft's extensive spending on AI infrastructure.

The company reported $37.5 billion in capital expenditures for its fiscal second quarter of 2026. This figure represents a 66% year-over-year increase, primarily directed toward building advanced artificial intelligence capabilities and upgrading its cloud computing infrastructure. These investments are critical for maintaining its leadership in the competitive AI landscape.

The global AI market projects substantial expansion, supporting Microsoft's investment strategy. Analysts forecast the market will reach $335 billion in 2026. Projections show continued aggressive growth, with the AI market expected to climb to $1.3 trillion by 2032.

Microsoft’s significant capex positions it to capture a large share of this expanding market. The current valuation suggests an opportunity for investors to consider the company’s long-term potential in a sector poised for dramatic growth. Observers should track Microsoft's continued infrastructure build-out and its impact on future revenue streams.