Microsoft faces further downside risks as U.S. inflation pressures mount

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Microsoft faces pressure despite strong fundamentals

Hot CPI and PPI reports increase pressure on technology stocks

The macroeconomic environment for Microsoft has become more challenging following the release of two inflation reports. Yesterday, September CPI accelerated from 3.4% to 3.7% year-on-year, exceeding the forecast of 3.6%, while monthly consumer price growth reached 0.6%. Today, pressure intensified following the PPI release: producer prices surged by 1.3% month-on-month against expectations of 0.5–0.6%, marking the largest increase since March 2022.

Annual producer price inflation reached 6.3%, while core PPI, excluding food and energy, increased by 0.7% month-on-month. At the same time, September retail sales rose by 0.8%, compared with forecasts of around 0.3–0.4%, although a significant portion of the increase was driven by higher gasoline prices.

This combination of resilient consumer demand and accelerating producer prices increases the risk of further Fed tightening. Meanwhile, the 10-year U.S. Treasury yield declined to approximately 5.09%, but the bond market has so far failed to support technology stocks, as investors have shifted their focus from the prospect of lower borrowing costs to the risks of persistently elevated inflation and slower corporate earnings growth.

Strong earnings and Maia 300 support long-term prospects

Despite the unfavorable external environment, Microsoft's fundamentals remain strong. In its latest quarterly earnings report, the company recorded an 18% increase in revenue to $90 billion, while adjusted earnings per share rose by 23% to $4.74. The next earnings report is expected on October 28, with consensus forecasts calling for revenue of approximately $90.7 billion and earnings per share of around $4.72.

Another factor supporting long-term growth is the Maia 300 architecture unveiled on October 12, which could improve the efficiency of AI request processing and gradually reduce the company's dependence on third-party accelerator suppliers. However, following today's PPI release, investors may scrutinize Microsoft's capital expenditures more closely, as the combination of high interest rates, rising data center energy costs, and massive infrastructure investments raises expectations for the future profitability of Azure and Copilot.

The $520 support level could determine the next move

For now, Microsoft's fundamental appeal remains intact, but short-term risks are tilted toward a continued correction, especially if today's weakness in technology indices develops into a broader selloff in U.S. equities. Failure to establish a firm position above $532, as I warned in Microsoft tests $555 as AI investments drive bullish momentum, would lead to a decline toward $524–520, where buying interest could emerge, although a break below the latter level could weaken the bulls' position.

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