£10,000 in Microsoft shares 10 years ago is now worth…

A Â£10,000 investment in Microsoft (NASDAQ:MSFT) shares from February 2016 is now worth Â£72,815. Thatâs an outstanding result and it doesnât even include the dividends.

Ten years ago, the stock was trading at an unusual discount because the company was in the early stages of a major technological transition. Sound familiar?

Cloud

Back in 2016, Microsoft shares were trading at some unusually low valuation multiples. The stock reached a price-to-earnings (P/E) ratio of 18 and a price-to-book (P/B) ratio of 5.

The reason is that the company was going through a major shift in the way it operated. It was shifting from selling physical copies of software (on discs) to cloud-based subscription services.

Moving from permanent licenses to monthly subscriptions resulted in a drop in sales. And building out the associated data centre infrastructure compressed margins in the short term.

On reflection, though, the chance to grab Microsoft shares at a once-in-a-decade valuation proved to be a huge opportunity. But this isnât just a history lesson â it might well be relevant today.

AI

Fast forward to the present day and Microsoftâs stock has just fallen 16% in a month. The big reason is that the firm has announced plans for $150bn in artificial intelligence (AI) investments this year.

Thatâs going to weigh on free cash flows for the foreseeable future. But while history doesnât exactly repeat itself, I wonder whether investors might think thereâs something familiar here.

Thereâs a risk that Microsoft could be over-investing in AI at the moment. And a big part of this comes from the fact that 45% of the firm’s contracted future revenue is set to come from OpenAI.

Itâs currently unclear exactly how Sam Altmanâs firm plans to finance its obligations. So investing heavily on the basis of future order from ChatGPTâs owner makes investors nervous.

Risks

There isnât much investors can do in these situations. The situation is in the hands of the companyâs management â and Microsoft looks to me to have a very good CEO in Satya Nadella.

Iâve been impressed by the way Nadella has conducted himself over the last 12 months or so. He wasnât flustered by DeepSeek and he has a clear strategy for the firm.

Most importantly, he doesnât come across to me like someone running a start-up. His ambition isnât growth at all costs â he seems to me to be a careful, diligent, and responsible operator.

I certainly donât believe Microsoft is making a $150bn commitment without a lot of careful thought first. Thatâs not to say it canât make a mistake, but I strongly doubt this is just data centre FOMO.

Opportunity

I think the recent pullback in Microsoft shares means it might be worth investors taking a closer look. The stock is down 2.7% over the last 12 months, but earnings per share have climbed 29%.

Thereâs no guarantee the share price wonât fall further from this point. But chances to buy the stock at these kinds of valuation multiples donât come around very often.

The post Â£10,000 in Microsoft shares 10 years ago is now worth… appeared first on The Motley Fool UK.

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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Microsoft. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.