Microsoft Stock Rally Leans on OpenAI Stake as AI Valuations Soar

A rally that has outrun its own valuation case

Microsoft's recovery since early summer has been steep enough to split the analysts who follow it. In early August, a widely read valuation note gave the stock a Sell rating. It put intrinsic value at $385.46 per share, about 20% below where the shares traded then, while still describing the business as fundamentally strong.1 The author's argument was that the share price already assumed near-perfect results from AI and Azure, so a disappointment had more room to hurt than a beat had to help.1

The stock kept rising anyway. By October 7 it had returned 37.7% over 90 days to close at $529.30. The most-followed community narrative on one analytics platform puts fair value at $419.91, which would make the shares about 26% overvalued. Sell-side price targets average $587.63.2 One analyst, Melius Research's Ben Reitzes, has raised his target to $665. He downgraded the stock in February over the threat AI poses to the Microsoft 365 business, and now argues that AI security and governance will favor Microsoft.5

The split is less about Microsoft than about how to price AI money that hasn't turned into profit yet. The company's share price now tracks the private AI market as much as its own earnings. That private market is pricing startups at levels that would have seemed absurd a year ago.

The fundamentals are not the problem

Almost nobody disputes the operating numbers. Azure passed $100 billion in annual revenue and grew 43%. Company-wide revenue rose 18% in the fiscal fourth quarter.4 Commercial remaining performance obligations, the contracted backlog, jumped 84% to $678 billion. One analyst noted that growth in that backlog is coming from more customers than just OpenAI.7 Microsoft 365 Copilot has passed 30 million paid seats. Management has also said customer demand is still running ahead of available capacity.8

The cost is the problem. Capital spending rose 80% to $116 billion in fiscal 2026, although the company still generates free cash flow.24 The August Sell note put one recent quarter's capex at $41 billion and counted $329 billion in future obligations.1 Trefis noted that the past three months of gains came more from investors paying a higher multiple than from business growth. It also flagged the risk of overcapacity if demand for AI compute cools.8

The longer record makes the rally look less dramatic than the headlines suggest. The shares hit $553.72, then fell 36% to a late-June low in a selloff driven by fears that AI tools would replace per-seat software. The stock is up 49% since then, yet sits roughly where it was a year ago.5 Including dividends, Microsoft trailed the S&P 500 in both 2024 and 2025 and is behind again in 2026. A third straight year of lagging has happened only twice since the company went public.10 Earnings per share grew 32% to $17.95 in fiscal 2026, so the multiple has actually fallen, to about 29 times earnings.10

The OpenAI stake is the swing factor

The bull case that really ties Microsoft to the AI deal market is its stake in OpenAI. That stake, roughly 27%, came out of the October 2025 restructuring and was valued at about $135 billion at the time.29 Since then, OpenAI has closed a $122 billion round at an $852 billion post-money valuation, which one account calls the largest private financing on record.30

The coverage does not agree on what the stake is worth now, and the gap is wide. Some reports still use the $135 billion figure from the restructuring.24 One analysis estimates that the new money diluted Microsoft to about 23%, worth about $197 billion at the $852 billion price.27 Other analyst estimates put the holding near 26.8%, or about $228 billion.23 OpenAI has not released an updated ownership table since the 2026 round, so none of these numbers can be checked.25

The upside rests on hopes for an IPO. One shareholder argues that if OpenAI lists near a reported $1.2 trillion valuation, which some now expect around 2027, a 27% stake would be worth about $324 billion before dilution. That would be roughly 8.5% of Microsoft's $3.81 trillion market value.24 OpenAI is also reported to be negotiating a private round that could value it at up to $1.5 trillion, though no term sheet has been signed.26 One IPO analysis says Sam Altman reportedly considers any listing price under $1 trillion a non-starter.22

The two sides also differ on how much the stake should matter to Microsoft shareholders. Bulls treat it as hidden value the market hasn't priced in.21 A more cautious view is that the stake equals about 5% of Microsoft's market value. On that reading it is a bonus, and investors should judge the stock on Azure, Office and Copilot.27 The second view looks more sensible to us. A gain from listing a holding that big would be welcome, but it won't change the outlook for a company worth nearly $4 trillion.

A funding market running hot

The stake carries extra risk because of where those private valuations are coming from. OpenAI's price went from $157 billion in October 2024 to $852 billion in March 2026.28 Its rivals moved even faster. Anthropic's secondary-market price reportedly passed $1.1 trillion in the same week OpenAI held its mark flat in an employee tender.26 One account says a reported $965 billion Anthropic valuation in May already put it ahead of OpenAI.28 The fact that the figures disagree says something too: much of this pricing comes from secondary trades and unsigned term sheets, not audited sales.

The late-stage startup market shows the same pattern. Instinct, a personal AI assistant company about a year old, raised a $1 billion Series C at a $10 billion valuation from Sequoia, Benchmark and Coatue.12 Instinct accounted for 38% of roughly $2.6 billion raised by AI startups in the week ending October 5. All ten primary rounds in that tally went to U.S. companies.17 Robotics developer FieldAI is reported to be raising $700 million at a $10 billion valuation, five times its price from just over a year ago.13 Coding-agent maker Cognition raised more than $2 billion at a $48 billion valuation in September, up from $26 billion in late May.16

There are new unicorns nearly every week. Kevin Mandia's security startup Armadin was valued at more than $2.5 billion.20 Chip-simulation startup Vinci reached $1.5 billion.15 Open-source lab Nous Research also hit $1.5 billion in an October 7 round that included Nvidia.18 AI chip maker Etched raised at a $10.3 billion valuation, and infrastructure platform Together AI at $8.3 billion.11

Acquisitions are getting bigger as well. AMD agreed to buy World Labs for about $8.2 billion in stock, the largest AI acquisition in that weekly tally.17 ElevenLabs employees sold $300 million of shares at a $22 billion valuation.17 These deals give private investors ways to cash out, and they help keep the prices of later rounds high.

What the market may be missing

The risk is concentration, not fraud or collapse. Microsoft is exposed to the AI boom through Azure demand, its equity stake, and contracted revenue. One analysis estimates that OpenAI commitments make up about 45% of an earlier $625 billion Microsoft backlog.23 OpenAI also still owes Microsoft about 20% of its revenue through 2030, with payments capped at $38 billion.23 All of that helps if private AI valuations keep climbing, and all of it pulls on the stock at once if they fall.

Copilot adoption remains the weakest part of the story. Microsoft reports paid-seat growth. But a Recon Analytics survey found that when U.S. workers could choose among Copilot, ChatGPT and Gemini, only 8% picked Copilot and 70% picked ChatGPT.5 Management has said it expects Microsoft 365 commercial cloud revenue growth to speed up during the fiscal year, which gives investors a clear measure to watch.8

The options market isn't yet signaling a top. One technical analysis found put-to-call ratios well short of the levels that usually mark a peak.3 Earlier this year, the same columnist questioned whether Microsoft offered better AI value than Amazon, Google or Meta, after the stock failed to break above its 200-day moving average.9

The verdict

Our view is that the "gone too far" warning is right about valuation and wrong about timing. Microsoft's business supports a premium multiple. The added gains now depend on private AI valuations continuing to rise. Those valuations come from unsigned rounds, secondary trades, and startups valued at $10 billion after a year in business. The fiscal first-quarter report later this month is the first real test.5 If Azure keeps growing and Copilot revenue speeds up, the rally holds. If not, the multiple, and the OpenAI stake that supports it, could fall faster than the business itself.