This company will become the most valuable AI stock in 2026

Microsoft has integrated advanced AI technology across the ecosystem.

The company is a dominant player in the enterprise software space and is relatively resilient to the economic situation.

Microsoft has a diverse revenue business that helps you face market volatility and competitive pressures.

I like it more than 10 shares than Microsoft›

The US stock market has bounced impressively from the turbulence caused by the April tariff shock. With strong revenue performance and easing geopolitical tensions, investors are once again looking for the next technology winner.

nvidia (NASDAQ: NVDA) The past few years have seen an incredible driving experience, and demand for GPUs has increased. However, there is one stock that is building a larger moat.

Meet Microsoft (NASDAQ: MSFT)A global technology giant that embeds artificial intelligence (AI) into all layers of the ecosystem. Nvidia and Microsoft are currently challenging each other to become the most valuable companies in the world, but the latter approach will allow them to significantly outperform Nvidia by next year. This is why.

Nvidia mainly focuses on developing the hardware and software infrastructure needed to drive the ongoing AI revolution. In contrast, Microsoft has built a strong presence in both the AI ​​infrastructure and the AI ​​application market.

Microsoft leverages AI technology to reduce performance and costs across the technology stack, including data center design, hardware, system software and model optimization.

The company was then able to monetize AI technology through several means, from direct use to indirect use through third-party applications built using Azure AI Services, such as Copilot Virtual Assistant across applications such as Microsoft 365, Dynamics 365, GitHub, and other applications.

Microsoft has also quickly expanded its AI infrastructure, releasing a small language model (38 million downloads) running on the CPU and a PHI family of Bitnet B1.58. This will help the company reduce its dependence on GPUs, reduce costs and increase AI accessibility.

Microsoft tools and platforms such as GitHub, Visual Studio Code, and Power Platform are increasingly being used by developers to build AI applications. This creates a strong network effect as the value of these offerings increases rapidly, along with new insights provided by existing developer bases, attracting even more developers.

Microsoft also processed more than 100 trillion tokens in the third quarter (such as ID tokens, access tokens, and tokens used for user authentication), up five times the previous year. This large scale has given the company the advantages of powerful data in operational and optimization insights that hardware players cannot replicate.

The 3rd quarter results for 2025 highlight the success of management’s AI strategies. Revenues for Azure and other cloud services increased 33% year-on-year, with AI services contributing 16% points to its growth.

The company also reported a triple increase in use of Microsoft 365 Copilot and a four-fold increase in use of Github Copilot compared to the previous year.

Enterprise customers have been using Microsoft’s business productivity products extensively over the past decade. These products are deeply embedded in the company’s infrastructure, and clients find it difficult to switch to competitors.

With AI integration, the enterprise software sees even better customer retention and recurring revenue. Additionally, the company’s long-term corporate relationships also offer cross-selling and distribution opportunities. This is the advantage that pure play AI companies cannot replicate.

Currently, more than 230,000 organizations, including 90% of the companies that make up the Fortune 500, use Copilot, the company’s virtual assistant. Unlike NVIDIA’s GPU sales, which is a one-off transaction, Microsoft’s AI services generate recurring revenue streams.

Companies have chosen to delay GPU purchases in tougher economies, but are less likely to eliminate mission-critical software that performs day-to-day operations.

Microsoft generates revenue from a variety of sources, including cloud computing infrastructure, a set of productivity applications, games, and advertising. This has significantly reduced the risk of business concentration for the company due to its reliance on a single or several market.

All of these strategies have led to extraordinary revenue visibility. The company concluded the third quarter, with its remaining commercial performance obligation (RPO) of $315 billion, representing a 34% increase from the previous year. Additionally, Microsoft’s 98% pension revenue model offers more predictable cash flow compared to NVIDIA’s bulk GPU sales. This relies heavily on the semiconductor cycle and ongoing build-out of AI infrastructure.

Nvidia’s investment case is even more risky given the increased competition from companies developing in-house chips such as advanced micro devices, Intel and Hyperscalers. As AI inference workload costs rise, more clients prefer to shift workloads from expensive GPUs to cheaper CPUs or seek software services that can defer obsolescence of existing GPUs.

Furthermore, the increase in NVIDIA’s export restrictions on GPU sales to China and other international markets also brings a major headwind. This could damage the top line of chipmakers over the next few years.

Microsoft is currently trading 26.2x forward revenues, lower than its five-year average of 33.2. Nevertheless, the rating is premium, especially for companies that are not only AI but also major software companies. Therefore, some investors are uncomfortable paying premium AI ratings to traditional software businesses.

However, AI is gradually changing every aspect of Microsoft’s business. Despite its significant investment in AI infrastructure, the company’s financial results continue to be impressive. In the third quarter, Microsoft’s operating profit margin rose 1 percentage point to 46% year-on-year, while cash flow from operations rose 16% year-on-year to $37 billion.

The company also maintains a cash and investment balance of $79.6 billion, which ensures it has a strong financial flexibility. Finally, management remains committed to returning value to shareholders, an increase of 15% year-on-year, of $9.7 billion payments paid in dividends and share repurchases.

Against this background, it appears quite plausible that the company will clearly emerge as the most valuable AI stock in 2026.

Consider this before purchasing stocks at Microsoft.

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Manali Pradhan has no position in any of the stocks mentioned. Motley Fool has appeared and recommended advanced microdevices, Intel, Microsoft, and Nvidia. Motley Fool recommends the following options: A $395 call with long Microsoft in January 2026, a $24 call with short-term Intel in August 2025, a $405 call with short-term Microsoft in January 2026. Motley Fools have a disclosure policy.

Forecast: This company will become the most valuable AI stock in 2026.