Is Microsoft Stock a Buy After Expanding Its Nvidia Partnership?

Microsoft MSFT) is strengthening its position in artificial intelligence after expanding its collaboration with Nvidia NVDA) and introducing a new generation of AI-powered Windows PCs.

On Wednesday, Microsoft unveiled pricing and availability details for its Surface Laptop Ultra, powered by Nvidia's RTX Spark chip, which enables developers and consumers to run AI models directly on their devices rather than relying entirely on cloud infrastructure.

Starting at $2,599, the new laptop will become available on October 16, alongside Nvidia-powered AI PCs from Dell DELL), HP HPQ), Lenovo LNVGY), and other manufacturers.

Additionally, Microsoft announced the Nvidia-powered Surface RTX Spark Dev Box, designed for developers and AI engineers working with advanced models, which is expected to ship in November at a starting price of $5,999.

The collaboration could help Microsoft capture additional demand for AI-enabled computing while strengthening its Windows and Surface ecosystems.

Microsoft's Growth Outlook Remains Strong

Microsoft's growth trajectory remains encouraging, supported by expanding demand for Azure cloud services, enterprise AI applications, and its Microsoft 365 Copilot offerings.

During its most recent fiscal fourth quarter, Microsoft reported revenue of $90 billion, up 18% year over year, while adjusted earnings climbed 23% to $4.74 per share.

Looking ahead, the Zacks Consensus Estimate calls for Microsoft's current fiscal 2027 revenue to climb 17% to $390.2 billion, with earnings expected to increase 9% to $19.65 per share. Furthermore, FY28 sales and EPS are each projected to rise another 18%, highlighting the company's favorable longer-term growth prospects.

Tracking Microsoft’s EPS Revisions

Although Microsoft’s growth outlook remains strong, earnings estimate revisions have been largely unchanged.

The FY27 EPS consensus is slightly up in the past 60 days from $19.63 to $19.65, while FY28 estimates have dipped from $23.30 to $23.24. This suggests analysts remain confident in Microsoft's growth outlook but have yet to become more bullish on its near-term earnings trajectory.

Microsoft's Premium Valuation

At current levels, Microsoft stock trades at 27X forward earnings, well above its Zacks Computer-Software industry's average of 16X and at a slight premium to the benchmark S&P 500.

This premium reflects Microsoft's leadership in cloud computing, recurring enterprise software revenue, and expanding AI opportunities. Still, elevated expectations leave shares vulnerable to volatility if Azure growth slows or the company's substantial AI infrastructure investments pressure profitability.

Bottom Line

Microsoft's expanded Nvidia collaboration adds another catalyst to its compelling long-term AI growth story. However, MSFT shares are up a respectable but relatively modest 9% year to date, suggesting investors may be gravitating toward other high-growth opportunities with stronger near-term momentum.

Combined with its premium P/E valuation and relatively stagnant earnings estimate revisions, Microsoft stock currently lands a Zacks Rank #3 (Hold), with MSFT being more appealing as a long-term holding than an aggressive near-term buy.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research