Microsoft slides toward $496 as sellers challenge strong AI-driven outlook

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Microsoft slides toward $496 as sellers challenge strong AI-driven outlook

Azure and AI remain key growth drivers

The main driver remains the cloud and AI business. Microsoft Cloud revenue rose 27% in the latest quarter to $59.3 billion, while Azure and other cloud services increased 43% year over year. Annual Azure revenue exceeded $100 billion for the first time, while the number of paid Microsoft 365 Copilot users surpassed 30 million, confirming accelerating commercial monetization of AI. At the same time, investors continue to closely monitor the scale of capital expenditures.

Microsoft invested around $41 billion in capex in the quarter alone as the company expands data centers and AI infrastructure. This supports Azure’s long-term growth, but at the same time raises the requirements for returns on investment. At the current level of around $496, MSFT trades at a P/E of roughly 29.5, so the market is already pricing in continued high growth rates in the cloud business.

Outlook stays positive despite execution risks

Medium-term expectations remain predominantly positive. The main argument in favor of further growth is that demand for AI computing still exceeds available capacity, while Microsoft’s contract base provides strong visibility into future revenue. However, there are also risks. The More Personal Computing segment saw revenue decline 4% in the latest quarter, Windows OEM and Devices fell 7%, while Xbox content and services declined 10%.

In addition, after the strong rise in the stock, the market is becoming more sensitive to any signs of slower Azure growth or accelerating capex without a corresponding increase in margins. The current analyst consensus remains positive, while aggregated estimates published today point to a median price target of around $550, implying moderate upside from current levels, although the range of forecasts remains wide.

Middle East tensions weigh on risk appetite

Persistent tensions around Iran and the Strait of Hormuz are supporting oil prices and weakening global risk appetite. European markets traded mostly lower today precisely because of geopolitical concerns, while new attacks on shipping in the region are increasing the risk of further gains in energy prices. For Microsoft, the direct operational impact is limited, but the indirect channel is important: higher inflation through energy prices could keep bond yields elevated and put pressure on technology sector valuations.

The lack of progress by bulls at the current highs, as I warned in Microsoft tests $500 support as strong earnings underpin outlook, is triggering the liquidation of long positions, against which MSFT may break the current support and continue declining toward $480-470, where moderate buying is possible. However, a break below the latter level would lead to a decline toward $460-440. The long-term outlook remains constructive.

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