Microsoft’s stocks are cheaper than IBM’s for the first time in a decade. Both are trading at 23.0X and 23.7X forward earnings, respectively.
Microsoft has been trading at a lower multiple than IBM since January 2026. Previously, a similar trend had been observed in July 2013, according to the market data available at Dow Jones.
Dow Jones Market data has further confirmed that Microsoft and other hyperscalers are investing billions of dollars in AI, which is tampering with the valuations.
The capital expenditure at Microsoft could reach an estimated amount of $115 billion in 2026. On one hand, the market is witnessing ambitious investment plans of tech companies in AI for 2026, while on the other hand, the falling stocks of Microsoft indicate a new contrast in technology investing.
The shift highlights a change in how investors are perceiving Microsoft and the other tech companies that are dedicating billions to develop AI infrastructure.
Microsoft, along with its peers, including Alphabet(GOOGL), Meta Platforms(META), and Amazon(AMZN), is anticipated to spend a combined amount of $650 billion on capital expenditures in 2025, indicating a 60% increase from the amount they rolled out in 2025 and $150 billion higher than consensus estimates.
IBM was once considered a heavy tech giant in the industry. However, the company has divested these businesses since then and placed increasing emphasis on its consulting and software divisions.
According to Portfolio Manager at GW&K Investment Management, Aaron Clark, the increase in spending by Microsoft and other big technology companies has allowed them to own more physical property, run up more costs, produce less free cash flow, and take on significantly higher debt than ever before. This has forced the big tech companies to wonder whether they can uphold the big valuations that they had with their asset-light business models before.
Markets are currently in an uncertain situation, whether the investments are worth it or not. Microsoft’s stock has fallen by 14% since its earnings report released on January 28th; these declines signal investor concerns over how quickly your revenue from your cloud services (Azure) will grow compared to how much you’ve been spending on building out these service centers.
Clark informed MarketWatch that we are currently in a “land grab” phase where cash flows will either return to historical levels (pre-corona) or be permanently shifted to higher cash flow levels. He also believes that if Meta & Amazon continue operating as they are now, they will have negative free cash flow by 2026.
Melius research analyst Ben Reitzes expressed surprise that Copilot had only acquired 15 million paying users three years after its multi-million dollar marketing campaign.
However, Clark does not agree that IBM would sustain its higher valuation than Microsoft going forward. He argues that IBM is susceptible to multiple AI headwinds. If the AI adoption struggles to gain momentum, IBM will also witness a decreasing demand.
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Moreover, Microsoft’s financial position is comparatively stable among its peers, and it is anticipated to be the only hyperscaler generating cash flows in excess of capex in 2026, according to Yuri Seilger, Bank of America.
At the same time, Reitzes is not sure whether Microsoft’s cash level will benefit the company, as its business also faces threats from AI. It needs to enhance its capex markedly to keep the momentum with Amazon and Alphabet. He further added that if the company does not enhance its spending now, it indicates either an implementation issue or a need for managing earnings. According to him, neither of the options is good for the company.
