Why Microsoft Stock (MSFT) Keeps Falling and Why One Investor Sees More Downside Ahead

There’s no denying that Microsoft (NASDAQ:MSFT) has had a brutal year so far, with the stock shedding nearly a quarter of its value, marking its sharpest drop since 2008.

Misery does love company, and Microsoft certainly isn’t bucking a larger trend. Markets are limping along, with the weakness especially pronounced among tech stocks, as fears of an AI bubble circulate and capex spending continues to climb. Ongoing tensions involving Iran aren’t helping either, with rising oil prices and geopolitical uncertainty adding another layer of pressure on investor sentiment.

With that backdrop, it’s not exactly a huge shock that MSFT has been falling. Yet, when you look under the hood, the business itself is still delivering. Last quarter, revenue climbed 17% year over year to $81.3 billion, while operating income rose 21% to $38.3 billion.

Though the company’s $37.5 billion in capex spending irked investors, CEO Satya Nadella trumpeted Microsoft’s AI commitment to the revolutionary technology. “We are only at the beginning phases of AI diffusion,” he declared.

Strong words, and some bulls (most Wall Street analysts, for instance) certainly see the weak share price as an optimal opportunity to load up on MSFT. Bears, on the other hand, aren’t quite sure that MSFT has reached an inflection point just yet.

Count one investor, known by the pseudonym The Sharpe Quest, among those who expect further losses up ahead.

“I think a great buying opportunity may be forming, but it is not the moment,” the investor said.

Sharpe Quest bases this pessimistic view on several factors. For one, Azure seems to be losing ground to Google Cloud, with its 39% growth rate falling short of Google Cloud’s 48%. In addition, the investor worries that compute capacity constraints could give competitors an opening to chip away at Microsoft’s position.

The investor also points out that Copilot, as the “central axis” of Microsoft’s AI efforts, should be more visible. Sharpe Quest floats the theory that the company is waiting for Azure’s revenue to grow large enough that the market won’t be so perturbed by the fact that some of the company’s business lines have seen their sales shrink due to AI.

The bigger question, however, is whether Microsoft can translate its massive capex spending into meaningful revenue before margins begin to come under pressure. While that outcome would be reassuring, Sharpe Quest emphasizes that the proof still isn’t there.

“Until then, monitoring and caution,” concludes Sharpe Quest, who rates MSFT a Sell. (To watch The Sharpe Quest’s track record, click here)

Wall Street, however, is far less hesitant. The stock boasts a Strong Buy consensus rating backed by 33 Buy recommendations versus just 3 Holds. Meanwhile, the average price target of $583.68 implies upside of ~64% from current levels (See MSFT stock forecast)

Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.