Microsoft reports earnings on Wednesday, and investors are nervous. The stock has already endured a volatile year, suffering its worst quarterly performance since the global financial crisis in 2008.
At one point it had lost more than a third of its value from its October peak, before a sharp rebound – including its strongest four-day rally since 2020 – eased investor tensions. Not for long though – last week saw renewed weakness, leaving the stock almost 25 per cent below those October highs.
Microsoft isn’t the only mega-cap technology giant to struggle lately. Bespoke Investment notes that while the S&P 500 has hit record highs, a basket of the magnificent seven stocks remains below October’s peak.
Microsoft has underperformed all but one of those magnificent seven (Tesla), and has also badly lagged the tech-heavy Nasdaq.
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The reasons are familiar. Heavy investment in artificial intelligence infrastructure has yet to translate into clear returns, while Copilot adoption and monetisation remain slower than hoped.
Broader weakness across software stocks reflects growing investor concern that AI could ultimately disrupt Microsoft’s core business, while roughly 45 per cent of Microsoft’s contracted commercial revenue is linked to OpenAI, causing investors to fret over concentration risk.
Any good news? Microsoft now trades on just 22 times estimated earnings, well below levels seen in recent years and offering at least some valuation support after the recent share price bleeding. Still, valuation alone has not been enough to settle the stock so far, so tomorrow’s earnings will be the next test.
Microsoft
