Forget the S&P 500: Microsoft Remains One of the Best Stocks to Own

Forget the S&P 500: Microsoft Remains One of the Best Stocks to Own

Marc Guberti, The Motley Fool

Mon, August 24, 2026 at 4:02 PM GMT+3 5 min read

The S&P is up by more than 10% this year, and its growth has outpaced Microsoft (NASDAQ: MSFT), but I don't think that trend will last too much longer. Microsoft's 20% return over the past month shows that more investors are spotting the opportunity.

Its earnings results were the major catalyst behind the surge, and there were a few details in the report that make me think Microsoft is a more promising investment now than the broad-market S&P 500.

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Cloud computing revenue continues to grow

Most of Microsoft's growth is coming from its cloud computing unit. Revenues from that part of the business were up by 27% year over year in Microsoft's fiscal 2026 fourth quarter.

This segment has maintained high growth rates for many quarters, and I believe that trend will continue. Artificial intelligence (AI) has boosted enterprise demand for cloud platforms. Competitors like Amazon (NASDAQ: AMZN) and Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) have reported strong demand for their cloud platforms that continues to accelerate.

Cloud computing operates on a recurring revenue model, and Microsoft's established customers will have to upgrade their plans as their needs evolve. It's extremely cumbersome to switch from one cloud platform to another, and it's not worth the effort if the differences between Microsoft, Amazon, and Alphabet are marginal.

Microsoft continues to enhance its cloud offering to boost retention and attract new customers. Microsoft Cloud provides a broad model catalog of more than 11,000 models. This selection aids customers that want "the right model for each task, based on quality, latency, cost, and compliance," per the earnings call transcript.

Other business segments are also doing nicely

I still view cloud computing as the major story for Microsoft, and continued growth in this segment will help the tech stock outperform the S&P 500 in the future. It accounted for roughly two-thirds of Microsoft's revenue in its fiscal 2026 Q4, but the businesses that generated the remaining third of sales still show some upside potential too.

Artificial intelligence has also translated into higher growth rates for Microsoft's other businesses. LinkedIn and online advertising revenue were up by 12% and 10% year over year, respectively.

Microsoft 365 commercial cloud revenue also rose 16% year over year. The company's "more personal computing" segment, which includes online ads, Xbox, and Windows OEM and devices, was down by 4% year over year. While I would prefer if every segment were delivering revenue growth, this part of Microsoft's business only represented 14.3% of total sales.

Microsoft stock may be suffering from the company's success. While some growth investors are chasing smaller AI stocks in the hopes of more substantial gains, Microsoft steadily delivers better fundamentals each quarter.

Overall revenue and operating income were both up by 18% year over year in the most recent quarter. Those numbers beat most companies in the S&P 500, and to top it off, Microsoft has a lower price-to-earnings (P/E) ratio than the index. These factors explain why I view Microsoft as a better opportunity than the market's most popular benchmark.

The S&P 500 has a lot of dead weight

It's not just that Microsoft is a great stock. I also believe investors should look deeper into any index fund or exchange-traded fund they want to buy. For instance, the S&P 500 has recently derived a large portion of its gains from the "Magnificent Seven" stocks, but a closer look reveals many stocks are flat or down this year.

More than 150 S&P 500 holdings are down year to date, while fewer than half of the stocks in this index have a 10% return or higher.

Admittedly, Microsoft is in neither of those categories. It's up year to date, but not by much. However, Microsoft's stock price movements have not kept pace with its improving fundamentals. Meanwhile, some S&P 500 stocks are overextended and more vulnerable to future corrections.

Tech stocks like Microsoft often do the heavy lifting for the S&P 500, and the stock price should eventually catch up with Microsoft's fundamental growth. That's why I like Microsoft better than the S&P 500.

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Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, and Microsoft. The Motley Fool has a disclosure policy.

Forget the S&P 500: Microsoft Remains One of the Best Stocks to Own was originally published by The Motley Fool