By Kevin Kelleher
February 15, 2012

By Kevin Kelleher, contributor

FORTUNE – Microsoft will always have its detractors. The truth is that Bill Gates moved away from the company he founded just as the Windows dynasty was being supplanted by rival technologies. That left CEO Steve Ballmer with the thankless task of trying to find a place for Microsoft in an industry where companies like Apple, Google and Facebook seemed to be increasingly setting the agenda.

That sense of disenchantment has been especially strong among investors, who have repeatedly called for Ballmer to resign. In 2010 and 2011, Microsoft (MSFT) significantly underperformed the broader market, declining 15% over the two-year period while the Dow Jones Industrial Average gained 17%. And it underperformed its Dow peers even though it had a price-earnings ratio that was consistently near 10, well below the Dow’s average PE ratio.

In 2012, things are changing. So far this year, Microsoft’s stock is up 19%, against a 5% rise in the Dow, and it’s been flirting with the $32 a share level it hasn’t seen since early 2008. And the biggest reason seems to be that Microsoft is finally persuading investors that it’s going to be just fine in the post-PC world.

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Of course, Microsoft won’t dominate the post-PC world. Neither will it be irrelevant. It’ has changed its seat at the head of the table for just another seat at the table. Investors had feared that the rise of tablets and smartphones meant a slow decline for the company. Instead, Microsoft seems to be positioning itself for years of steady, moderate growth.

That also seems to be the message that Wall Street has been sending to Microsoft this year. In the most recent quarter, revenue from Windows software, for decades the biggest source of Microsoft revenue, fell 6% last quarter to $4.74 billion, due largely to a 70% decline in netbook sales. In the past that alone would have been bad news, but Microsoft’s stock has steadily risen 8% since that disclosure.

Why? First, because other divisions are more than making up for the slowdown in Windows sales. Revenue from entertainment and devices (which includes the Xbox game console) rose 15% to $4.24 billion. And revenue from servers and tools rose 11% to $4.77 billion. In other words, server revenue grew fast enough to eclipse Windows revenue last quarter. And entertainment revenue is close to surpassing it as well.

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So even if Windows were a dying franchise, Microsoft has laid plans to keep its revenue and profits growing in other areas. And while it’s too early to say decisively, Windows may not be a dying franchise. It may in fact be one about to see renewed growth for years.

That all depends on how well Windows 8 works. The operating software isn’t expected to arrive until the second half of the year, but early reviews are positive. Windows 8 looks to be the most ambitious redesign of Microsoft’s core operating software since Windows 95. It reportedly reboots in less than eight seconds, requires a restart only once a month and employs the Metro interface.

Metro is key to Windows 8’s future. It’s a touch friendly interface designed to work on smartphones running Windows Phone 7, tablets powered by ARM processors, PCs using Intel chips and perhaps even the Xbox 360.

It took Apple (AAPL) several years to make the iOS software work smoothly on multiple devices – iPhones, iPads and, perhaps in time, Macbook Airs. Microsoft is planning to accomplish this in one fell swoop. Some critics doubt this is possible. Others see Microsoft trying to make it work. It all comes down to the details, of course, but if it works, Microsoft is poised to become a viable competitor to Apple not just in PCs and laptops, but in tablets and phones as well.

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The notion that Microsoft would languish in a post-PC world has been a cloud that has hung over the company for years. But now, the worst-case-scenario for Microsoft is that Windows becomes irrelevant and the company focuses on other initiatives like servers, business software and the Xbox.

For the first time in years, there is also a best-case scenario as well. Along with its other lines of business growing, Windows 8 will make Microsoft a strong player in tablets, smartphones and PCs. That would vindicate Ballmer against all the critics who called for him to resign. (There are rumors that Ballmer will do just that, after the release of Windows 8 later this year.) Success or disappointment, Windows 8 could be Ballmer’s swan song. If it’s a success, that could make for an bittersweet departure. Because Windows 8 may well be the technology that proves Microsoft can still be relevant.

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