Prediction: This Stock Will Be One of the Biggest Winners of the Second Half of 2026

It's been a strangely rough year for Microsoft (NASDAQ: MSFT) shareholders. Oh, it's not been a surprise. Most investors are now second-guessing the value of jaw-droppingly steep investments in artificial intelligence.

As one of the proverbial poster children for the AI revolution, what was so bullish for this ticker beginning in 2023 turned into a liability late last year. Indeed, shares of the software giant are now down more than 30% from their October peak. If there were ever a reversal brewing, though, this is it.

Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia.

For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » Still plenty of growth Don't misunderstand. The software giant's certainly got some challenges to deal with now.

For instance, its video gaming business is struggling, so much so that CEO Satya Nadella is reportedly even open to spinning out its Xbox unit into a stand-alone company. Its AI-powered chatbot, Copilot (the free version anyway), isn't gaining market share either. And for the fiscal year currently underway, the company expects to make a jaw-dropping $190 billion worth of capital expenditures, largely on artificial intelligence infrastructure.

That's well up from analysts' initial projections and more than 60% above last year's capex. Now, take a step back and look at the bigger picture. Last quarter's top line was still up 18% (15% in constant currency) year over year, led by 30% growth in its intelligent cloud division, where its AI-facilitating Azure platform's results are reported.

Productivity and business software sales improved 17% compared to year-earlier numbers. Operating income improved, too, up 20% to $38.4 billion.

And the foreseeable future looks just as bright. As CFO Amy Hood commented of its all-important Azure business in April's fiscal third-quarter earnings conference call, "broad and growing customer demand continues to exceed supply, and we continue to balance the incoming supply we can allocate here against our other high-ROI priorities," although the same could be said for most of its business lines. That's why the company guided for comparable growth for the quarter that ended in June, while analysts expect a repeat of the company's solid current-year results in the coming fiscal year, with more of the same in the cards further down the road.

Data source: Morningstar. Chart by author. Unnecessary worry Story Continues So why is the stock performing so poorly when it seemingly shouldn't be?

In simplest terms, investors are just starting to question -- and understandably so -- if the company's bold growth outlook is believable enough to justify such heavy spending on AI. This worry isn't unique to Microsoft, of course, although it's difficult to deny that this particular company has become something of a proxy for the entire AI industry. The technology giant is arguably more dependent on and more vulnerable to the ongoing proliferation of artificial intelligence than any other, after all, with more than one-third of its revenue directly or indirectly linked to AI.

If its proliferation stops or even just slows, Microsoft could feel it more than most. But that risk finally seems to be abating. Image source: Getty Images.

While plenty of people are now questioning the practical value of increasingly expensive artificial intelligence, institutional demand for AI solutions hasn't waned one iota. The business may have reached an important tipping point, in fact. As number-crunching from industry research outfit Exponential View highlights, for a second quarter in a row (and for the first time ever), artificial intelligence revenue exceeded the reported depreciation of the equipment facilitating it.

It's not the industry's only measure of fiscal viability, but it's an important one that's been nagging investors for a while now. As for its part in the practical commercialization of AI, although Copilot may not be gaining market share against the likes of ChatGPT or Google's Gemini, Microsoft's more powerful paid version of Copilot, meant to work alongside its other business-oriented software offerings, now has over 20 million users, versus just 15 million paid seats just a quarter earlier. It's certainly something to build on.

Spring-loaded recovery ready Investors still mostly don't see it, distracted by more than a few other worries at this time. That's why they've elected to let Microsoft shares continue sinking. There will come a time when this company's resiliency and AI-driven growth become undeniable, though.

It could happen as early next month, following the release of its fiscal fourth-quarter results, presuming the market is in a bullish mood at the time. If not then, though, any bearish overhang should be out of the way by the late-October or early-November release of its fiscal first-quar