Investors are increasingly focusing on Microsoft (MSFT) as the S&P 500 Index’s dividend yield approaches lows not seen since the dot-com era. This trend has prompted comparisons between the current artificial intelligence (AI) market and the speculative frenzy surrounding internet companies in the late 1990s. Prominent investor Michael Burry, known for his role in “The Big Short,” has joined the conversation, drawing parallels between the valuation of leading AI firms and those of tech giants like Cisco (CSCO) during the dot-com boom.
The S&P 500’s dividend yield has recently dipped to nearly 1%, reflecting broader market conditions. This decline is significant as it mirrors the levels observed during the peak of the dot-com bubble. While the current excitement surrounding AI shares similarities with that turbulent period, many believe that AI could redefine various industries, much like the internet did. Nonetheless, the memory of the dot-com bust lingers, with many companies from that era failing to recover, while a select few—such as Microsoft—not only survived but have flourished.
Despite a strong performance earlier this year, Microsoft shares have struggled recently, falling over 7% in the last three months. The stock’s peak in March 2025 has seen a pullback of more than 16%. Currently, Microsoft’s dividend yield is at 0.77%, which, although below historical averages, remains the highest among its peers in the “Magnificent 7.”
Microsoft’s journey toward becoming a Dividend Aristocrat, having consistently increased its dividend since 2003, is noteworthy. The company’s stock price growth has outpaced dividend increases, leading to a decline in yield. This trend reflects not only the robust performance of Microsoft but also the broader market context where the S&P 500 yield has fallen significantly.
Recently, Microsoft reported fiscal Q1 2026 earnings that exceeded analysts’ expectations on both revenue and profit. Despite this, the stock experienced a downturn as the company indicated plans for increased capital expenditures (capex) in the current fiscal year. Previously, Microsoft had anticipated lower capex growth compared to fiscal 2025, raising concerns about the sustainability of such investments. Investors are particularly focused on the impact of rising AI-related expenditures, especially given that Microsoft is a major investor in OpenAI.
In the latest quarter, Microsoft reported a net loss of $3.1 billion attributable to its share of losses from OpenAI, which, despite its soaring valuation, is impacting the company’s bottom line. This investment strategy has drawn mixed reactions, with some investors questioning the potential returns from such high expenditures.
Despite concerns surrounding the so-called AI bubble, Microsoft’s overall business remains strong. The company benefits from a diversified revenue base, encompassing its Windows and Office software franchises, cloud services, advertising, gaming, and LinkedIn. The increasing demand for AI-driven products is positively influencing Microsoft’s core businesses, particularly its cloud segment, which is rapidly gaining ground on market leader Amazon (AMZN).
While skepticism about Microsoft’s valuations has been common, the current price levels are beginning to appear attractive. The decline in Microsoft’s stock has effectively increased its dividend yield, and its forward price-earnings (P/E) ratio has dropped to just under 30x. This valuation seems reasonable in light of the broader market trends and Microsoft’s historical performance.
Looking ahead, the aggressive investment in AI technology is expected to impact profit margins due to higher depreciation costs. Nevertheless, Microsoft’s strong fundamentals and diverse revenue streams make it an appealing choice for investors. As the market adjusts, many are betting on Microsoft’s resilience and growth potential, adding to their positions amid recent fluctuations.
