As markets process ambitious AI spending plans set by major tech companies for 2026, the relative affordability of Microsoft (MSFT) stock highlights a new dynamic in technology investments. Microsoft shares are now priced lower than IBM (IBM) shares, with forward price-to-earnings ratios of 23.0 and 23.7, respectively. Microsoft's P/E ratio has been lower than IBM's since January 29. Prior to this, the last occurrence was on July 25, 2013, according to Dow Jones Market Data.

This valuation inversion was initially highlighted by the Fiscal.ai X account, indicating a shift in how investors view Microsoft and other tech firms investing billions in AI infrastructure. Microsoft, along with fellow hyperscale cloud providers Alphabet (GOOGL), Meta Platforms (META), and Amazon.com (AMZN), is projected to collectively allocate $650 billion in capital expenditures for 2026. This represents a 60% increase from their 2025 spending and is $150 billion higher than initial average forecasts.

IBM was historically a capital-intensive giant in the tech sector, focusing on chip and personal computer manufacturing. The company has since divested these operations, placing greater emphasis on its software and consulting divisions.

The increased expenditures by Microsoft and its peers suggest that leading tech companies will possess more physical infrastructure, incur higher costs, experience reduced free cash flow, and potentially issue more debt. Aaron Clark, a portfolio manager at GW&K Investment Management, noted that elevated spending levels lead investors to question whether large tech stocks can maintain high valuations similar to when their business models were less asset-heavy.

"The market is grappling with whether these investments are justified," Clark stated. "Is this a permanent shift to a higher spending level, or is it a phase of market capture, with free cash flow eventually returning to previous levels?" He pointed out that free cash flow for companies like Amazon and Meta could turn negative by 2026.

Since its earnings report on January 28, Microsoft's stock has declined by nearly 14%, reflecting investor dissatisfaction with Azure's revenue growth relative to the company's capital expenditure levels. Melius Research analyst Ben Reitzes downgraded Microsoft stock to a hold rating on Monday, expressing surprise that Copilot had only 15 million paid users after three years of significant promotion.

According to FactSet's average estimate, Microsoft could allocate $115 billion to capital expenditures in the 2026 calendar year.

However, Clark is skeptical that IBM will consistently maintain a higher valuation than Microsoft, as IBM is also vulnerable to several AI-related headwinds. If enterprise AI adoption fails to gain widespread traction, demand for IBM's consulting and integration services will likely decrease.

Among the four major hyperscale cloud providers and Oracle (ORCL), Microsoft maintains a relatively stable financial position. A recent report from Bank of America analyst Yuri Seliger indicated that Microsoft is projected to be the only hyperscaler whose cash flow will exceed capital expenditures in fiscal year 2026.

Reitzes, however, is uncertain whether Microsoft's cash reserves are necessarily advantageous. He wrote that Microsoft's "business faces threats from AI, meaning it needs to significantly increase capital expenditures to keep pace" with Alphabet and Amazon. If the company "does not increase spending now, it could indicate either execution issues or a need to manage surplus—neither of which is positive."