Forget D-Wave Quantum: This Subscription Software Giant Offers a Far More Reliable Quantum-and-AI Growth Story - The Motley Fool
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Quantum computing has captured Wall Street's imagination, with pure-play companies such as D-Wave Quantum and IonQ often dominating the headlines. These companies have ambitious roadmaps, as they continue building computers using "qubits," the basic units of quantum information, which are expected to solve certain complex problems faster and more efficiently than traditional computers. Even small technical breakthroughs in quantum computing can spark dramatic moves in the share prices of these stocks. However, these companies remain loss-making and depend heavily on external funding for their research programs. With meaningful revenue and large-scale commercialization likely to take some time, investors may face significant share price volatility along the way. Image source: Getty Images Instead of taking on the high risk of these pure-play quantum companies, investors could consider picking a stake in a subscription-driven software giant with significant exposure to quantum computing and artificial intelligence (AI) tailwinds. That company is Microsoft (MSFT +1.50%). Quantum computing strategy Microsoft is investing heavily to build a scalable quantum computing ecosystem. In 2025, the company introduced Majorana 1, a new type of quantum processor, which is the "brain" of a quantum computer. This processor works with "topological qubits," a specialized type of qubit designed to be more stable and less prone to errors than the conventional qubits used today. ExpandNASDAQ: MSFTMicrosoftToday's Change(1.50%) $5.87Current Price$398.61Key Data PointsMarket Cap$2.9TDay's Range$390.66 - $401.1952wk Range$344.79 - $555.45Volume1.7MAvg Vol32MGross Margin68.59%Dividend Yield0.89% Quantum computing is currently susceptible to environmental noise, which can disrupt qubits and cause calculations to fail. If Microsoft succeeds in building a fault-tolerant quantum computer, one that can detect and correct its own errors reliably, it could represent an important step toward widespread commercialization of quantum computing. This will enable quantum systems to solve complex real-world problems more consistently and at scale. Microsoft is already building the first "fault-tolerant" prototype for a scalable quantum computer, as part of the final phase of DARPA's Utility-Scale Quantum Computing (US2QC) program. DARPA is the U.S.
Defense Advanced Research Projects Agency, which funds high-risk, high-impact technologies. Besides its own hardware, Microsoft also gives customers access to multiple third-party quantum hardware providers such as IonQ, Pasqal, Quantinuum, Quantum Computing, and Rigetti Computing. This allows the company to benefit from incremental Azure usage, regardless of which quantum technology eventually prevails. Hence, Microsoft is positioning quantum computing as a long-term upside catalyst within its broader artificial intelligence and cloud ecosystem. Artificial intelligence tailwinds While quantum computing remains a long-term opportunity, AI is already driving Microsoft's financial metrics. In the second quarter of fiscal 2026 (ending Dec. 31, 2025), revenues rose 16.7% year over year to $81.3 billion. Of this, Microsoft Cloud, which includes Azure, Microsoft 365 Commercial, Dynamics 365, and other cloud-based services, accounted for $51.5 billion, up 26% year over year. The Azure cloud infrastructure platform saw revenue grow 39% year over year, driven by strong demand for AI-related workloads and traditional cloud migrations. Management has also highlighted that demand for Azure services exceeds available supply, implying that growth is constrained by data center capacity. Microsoft is working to resolve this challenge and added nearly 1 gigawatt of data center capacity in the second quarter. The company also invested $37.5 billion in capex in the second quarter, of which two-thirds was allocated to short-lived AI assets such as GPUs and CPUs. The high level of spending is supported by impressive revenue visibility. Microsoft exited the second quarter with commercial remaining performance obligations (RPO, a measure of contracted backlog) of $625 billion, up 110% year over year. Roughly 25% of this RPO will be recognized as revenue over the next 12 months. With 45% of the commercial RPO tied to OpenAI-related commitments, it is evident that generative AI workloads have become crucial for Azure's growth. Microsoft is also focusing on improving cost efficiency with its proprietary Maia 200 custom AI chip, which was recently brought online. Management claims that this chip improves total cost of ownership by 30% compared to prior-generation hardware. Over time, such chips could improve margins for AI workloads. Beyond infrastructure, Microsoft is also monetizing AI-powered applications. The company has 15 million paid Microsoft 365 Copilot seats, up more than 160% year over year, and 4.7 million paid GitHub Copilot subscribers, up 75% year over year. Daily active users of Copilot have also increased 10 times year over year. Hence, Microsoft seems to be successfully capitalizing on the increasing adoption of AI in enterprise workflows. Valuation Microsoft is currently trading at nearly a 28.4% discount to its 52-week high (as of Feb. 25, 2026). The stock has pulled back as investors are disappointed with the Azure's growth rate, especially given the high level of AI spending. Microsoft now trades at 24.3 times earnings, which is significantly lower than its historical five-year average price-to-earnings (P/E) multiple of 33.4 times. The pullback seems steep, considering that the company is growing revenue year over year at mid-teens and Azure is growing close to 40%. If Microsoft succeeds in converting its $625 billion backlog into revenue while also scaling Copilot adoption, there remains significant room for improvement in its valuation multiples. Against this backdrop, the company appears to be a smart pick in 2026.