Microsoft faces valuation pressure as AI investment cycle deepens
MSFT is trading around $490–491 on September 8 and is down nearly 2%, continuing to pull back after failing to hold above $510. This time, the pressure is related less to concerns about Azure growth and more to the broader deterioration in conditions for expensive technology stocks: the 10-year Treasury yield remains around 4.78–4.81%, oil is holding near multi-month highs, and the market is once again pricing in a meaningful probability of a Fed rate hike.
524.70
534.70
For Microsoft, this is particularly sensitive after the rapid recovery from the August lows, because at its current valuation the stock remains dependent on how quickly AI investments begin to translate into higher cash flow.
Cloud growth remains strong, but margin pressure matters more
The latest earnings remain strong. In the fourth fiscal quarter, revenue increased 18% to $90.0 billion, non-GAAP EPS reached $4.74, and Azure grew 43% y/y. But what is more interesting now is the internal economics of that growth: Microsoft Cloud generated $59.3 billion, while its gross margin declined to 65% from 68% a year earlier.
Capital expenditures for the quarter reached $41 billion, with around two-thirds going to short-lived assets, primarily CPUs and GPUs. This clearly illustrates the new phase of the MSFT investment case: demand remains very strong, but investors are paying increasingly close attention to how much profit the company generates from every additional dollar invested in AI infrastructure.
Backlog and Copilot demand support long-term case
At the same time, Microsoft has a strong argument that the investment cycle is not yet running ahead of demand. Commercial RPO reached $678 billion, up 84% y/y, and the company separately emphasized that all sequential growth in this metric came from customers outside the group of frontier model companies.
Microsoft also reported more than 30 million paid Microsoft 365 Copilot seats, while demand for Azure continues to exceed available capacity. Against this backdrop, Bank of America recently raised its price target to $600, focusing on Microsoft’s ability to distribute AI workloads between its own and third-party models and reduce inference costs. Analyst consensus also remains positive, with an average price target of around $571.
$485 becomes critical short-term level
On the hourly chart, the current pullback is bringing MSFT back toward the important $490–480 zone. As long as it holds, the move can be viewed as a correction within the recovery from the August lows. A loss of $485 would increase the risk of a return toward $480 and then $470–465.
On the upside, the nearest resistance is now $500–503, while stronger resistance remains around $510–515, where several recent attempts to move higher ended in selling. Therefore, as noted in Microsoft stalls near $500 as investors reassess growth quality, the short-term picture is currently neutral to negative: fundamental demand for Cloud and AI remains strong, but for a sustainable upward move to return, the market will need either lower yields or new evidence that rising AI CapEx is not continuing to pressure margins.
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