Microsoft May Be Pulling Ahead in the AI Race. Is It a Breakout Buy?

Microsoft (NASDAQ:MSFT) hasn’t just pulled ahead in the great market cap race, it also seems to be pulling ahead in the so-called AI race, with a strategy that may soon pay big dividends as various use cases become more monetized while the enterprise software behemoth looks to further develop its own AI muscles beyond the brawn provided by OpenAI. 

Shares of MSFT added another 6.51% in value over the past month, while Apple (NASDAQ:AAPL) gained only 0.48%. Microsoft appears to be rapidly approaching the $4 trillion market cap club not in a race with the Cupertino-based iPhone maker but with chipmaker and NVIDIA (NASDAQ:NVDA), which is neck and neck with MSFT for the largest publicly traded company in the world.

Since hitting its year-to-date low on April 8, Microsoft has surged 38.53%, setting an all-time high in the process. For bullish investors looking to jump in, does this current rally have legs? 24/7 Wall St. conducted analysis to find out.

Key Points in This Article:

• Microsoft is approaching a $4 trillion market cap and has set a record high in 2025. 
• The stock is up more than 17% this year, with the company eyeing layoffs in its sales division as its AI investments deepen. 
• If you’re looking for a megatrend with massive potential, make sure to grab a complimentary copy of our “The Next NVIDIA” report. This report breaks down AI stocks with 10x potential and will give you a huge leg up on profiting from this massive sea change.

Has the AI-Driven Microsoft (MSFT) Breakout Made the Stock Too Expensive?

As impressive as Microsoft’s AI growth engine is, the stock is sitting at fresh new all-time highs just shy of $500 per share. At these heights, the name goes for close to 38 times trailing price-to-earnings (P/E), which is pretty expensive for Microsoft standards. And while the premium multiple is warranted, the big question is whether shares are too lofty to put new money to work as we officially enter the second half of the year.

Indeed, Microsoft stock’s breakout moment may have caught some by surprise. After all, a P/E ratio in the low-to-mid 30s seemed about right. But this AI-driven rally should be viewed through a long-term lens. On June 18, Bloomberg reported that the company is planning new layoffs targeting its sales division. This follows a previous round of layoffs in May that resulted in the elimination of 6,000 roles. With the company’s fiscal year ending on June 30, the strategy appears to part of a shift towards increasing its AI investments. 

The agentic era of AI looks to be on tap for the second half of 2025, and perhaps there is no better stock to own than Microsoft as leading large language models (LLMs) gain a greater sense of agency, and with that, the ability to automate workers. Arguably, Microsoft has already unlocked a great deal of efficiencies to be had from AI with its latest wave of cuts. 

With Microsoft recently laying off thousands of employees and more potential cuts on the horizon for the Xbox gaming division, perhaps the enterprise software juggernaut is once again paving the way for its big tech rivals to follow suit. Either way, many signs suggest Microsoft hasn’t lost a step in the AI race. In fact, it may be picking up the pace as some of its peers opt to take a bit of a breather.

Microsoft Is Firing on All Cylinders

Up ahead, new features and updates (greater personalization and memory) to Copilot may solidify the company’s standing in AI. Add reasoning agents into the equation, and it’s becoming more apparent that Microsoft is the firm to beat in AI. As greater emphasis is placed on personalization and use cases, with less on the model that’s standing behind the scenes (ChatGPT), perhaps Microsoft will have what it takes to keep the good times going.

Sure, the stock’s expensive, but it could become a whole lot more expensive if its next wave of Copilot hits the mark. Add the growth potential of agents into the equation, and it becomes quite apparent that Microsoft is a growth juggernaut whose best days may still be ahead of it.

From a fundamental perspective, MSFT is clicking. Year-over-year (YoY) revenue is up to $245.12 billion from 2024’s $211.91 billion. Meanwhile, its free cash flow — a measure of a company’s financial well-being has grown from YoY from $59.48 billion to $74.07 billion. The stock receives a “Strong Buy” rating based on 35 Wall Street analysts, 30 of whom assign the Magnificent Seven stock a “Buy” rating, five who assign it a “Hold” rating and none who assign it a “Sell” rating. 

Will Apple Catch Microsoft in the Race to $4 Trillion?

With a new design named “Liquid Glass” stealing the show for Apple in its latest WWDC (Worldwide Developers Conference) instead of a cutting-edge LLM version of Siri, it certainly seems like Microsoft’s market cap lead ($3.651 trillion trillion at the time of writing) over Apple’s market cap ($3.006 trillion) is for good the time. Indeed, Apple is playing from behind in AI, but that doesn’t mean it doesn’t have what it takes to catch up, especially if it can ink a deal to buy Perplexity AI to give it a jolt in AI search.

I think it’ll be more about the AI experience than the type of model underneath the hood. Time will tell if Apple or any other mega-cap tech titan can beat Microsoft in AI software. For now, sticking with Microsoft seems like a sound bet, even if you have to pay a premium.

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