Microsoft shares are tracking a third consecutive year of underperformance relative to the S&P 500, a streak that has occurred only twice since the company went public in 1986. As of recent trading, Microsoft stock stands at approximately $525, representing a 2026 total return of about 9%, while the S&P 500 has gained about 15% over the same period.
The lag persists despite a significant recent rally. Microsoft shares rose almost 50% from a late-June close of roughly $353. In the two preceding years, the stock delivered positive returns of around 13% in 2024 and about 16% in 2025, including reinvested dividends. However, the S&P 500 outperformed in both instances, returning about 25% and 18% respectively.
Historical data from The Motley Fool indicates that Microsoft trailed the index from 2003 through 2005 and again from 2010 through 2012. The outcomes following these previous streaks varied significantly. During the first streak, Microsoft returned around 15% cumulatively while the index gained about 50%. The subsequent year, 2006, saw both return roughly 16%, with Microsoft not clearly outperforming until 2007. In contrast, the second streak resulted in a loss of around 6% for Microsoft shareholders versus a 36% gain for the index. This was followed by a 44% return for Microsoft in 2013, compared to a 32% gain for the index.
A key distinction between the historical streaks and the current situation is the valuation at the time of underperformance. At the end of the first streak in 2005, Microsoft traded at about 23 times its fiscal 2005 earnings of $1.12 per share. By the end of the second streak in 2012, the stock price was similar at around $27, but it cost only about 13 times fiscal 2012 earnings of $2.00 per share. On an adjusted non-GAAP basis, which excluded a $6.2 billion goodwill impairment charge, the multiple was under 10 times earnings.
Currently, Microsoft’s valuation is higher than at the end of either previous streak. The stock closed 2024 at approximately 36 times fiscal 2024 earnings and finished 2025 near 35 times fiscal 2025 earnings. As of now, it trades at about 29 times fiscal 2026 earnings. Despite the higher multiple, fundamental growth has accelerated. Earnings per share increased from $11.80 in fiscal 2024 to $17.95 in fiscal 2026, with the latest period showing a 32% rise aided by Microsoft’s OpenAI investment. Excluding that investment, adjusted earnings per share grew by 22%. Revenue also expanded by 18% in fiscal 2026 to reach $331.8 billion.
While the current price-to-earnings ratio is steeper than the under-10 multiple seen in late 2012, the company’s growth rate exceeds that of its previous lagging periods. The data suggests that while past streaks ended with strong performance, the current higher valuation may limit room for multiple expansion compared to historical precedents.