Microsoft (NSDAQ:MSFT) 50% AI backlog gap makes Google crown look premature

Market dislocation is punishing Microsoft while rewarding similar AI spend elsewhere

The AI trade is starting to split into winners and supposed losers, but the market may be drawing that line too quickly.

Microsoft’s (NASDAQ:MSFT) recent valuation pressure looks strange when compared with how investors are treating Google, Amazon and parts of the semiconductor market. D.A. Davidson’s Gil Luria argues the pendulum has swung too far toward crowning Google as the AI winner while treating Microsoft as the laggard.

The disconnect is especially clear in backlog. Microsoft reportedly has 50% more AI compute backlog than Google, which means the company is still selling large amounts of AI infrastructure even as the market questions its positioning.

For investors, the issue is not whether Microsoft has missed the AI cycle. The real question is whether the stock is being punished for the same capital spending that investors are rewarding elsewhere.

The valuation gap now looks harder to justify

Luria’s core point is that valuation gaps across technology have become extreme. Memory stocks such as Micron are trading at roughly eight to nine times earnings, while some CPU names still command multiples of 40 to 50 times.

That tells us the market is not simply pricing AI exposure. It is pricing different parts of the same AI supply chain as if they belong to completely different cycles.

Microsoft sits in a similar dislocation. A year ago, Google traded around 18 times earnings while Microsoft traded closer to 30 times. Now the market has moved the other way and may have overcorrected.

AI spending is being judged unevenly across hyperscalers

The market is giving Google and Amazon more room to spend heavily on AI infrastructure, while Microsoft appears to be getting punished for similar investment.

That distinction matters because AI infrastructure is not optional for hyperscalers. These companies need compute capacity, cloud infrastructure and data centre scale to remain competitive across enterprise workloads.

Microsoft is still one of the most embedded enterprise software companies in the world. Outlook, Teams, Word, Excel and PowerPoint remain core workflow tools for millions of businesses, which gives the company a distribution advantage many AI infrastructure competitors do not have.

The software risk may be overstated

The bear case is that AI agents could disrupt Microsoft’s software suite over time. That is possible, but the market may be treating disruption as if it is already happening.

Enterprise software does not disappear quickly when it sits inside customer workflows, compliance systems and daily team behaviour. Switching costs are not just financial. They are operational and cultural as well.

That makes Microsoft different from a pure AI infrastructure name. The company has both the software installed base and the cloud capacity to monetise AI across existing customers rather than relying only on new demand.

The Investors Takeaway for Microsoft

The investor takeaway is that Microsoft may not deserve the current AI discount being applied by the market.

Google has clearly improved its AI narrative, but that does not mean Microsoft has lost the race. If Microsoft continues converting backlog into Azure revenue and keeps embedding AI across its software suite, the current valuation gap could narrow again.

The risk is that AI capex remains high while investors demand faster proof of returns. But at current sentiment levels, the better question may be whether the market has become too negative on one of the few companies with both AI infrastructure and enterprise distribution at global scale.

Investors can find more coverage of global technology stocks and AI infrastructure themes at Stocks Down Under.