It’s been a tough month for “Magnificent Seven” tech stocks, including Microsoft (NASDAQ:MSFT). Since early July, Microsoft stock has slipped from around $465 per share, to around $412 per share as of this writing. This represents a double-digit percentage price decline, all in a matter of weeks.
Various factors have driven this rally. The most recent factor placing pressure on MSFT is the company’s latest earnings release. As has been the case with other “Mag 7” and large-cap tech stocks, investors have used the software giant’s earnings event as an excuse to sell rather than an excuse to buy.
That said, while the post-earnings pullback could persist in the immediate term, if you currently own this stock, or are mulling whether to enter or add to a position, keep the following in mind. Even as shares contend with many company and sector-specific tail winds right now, don’t assume that now is the time to throw in the towel.
Microsoft Stock Sell-Off: Blame Bearish Sentiment, a Cloud Outage, and a Poorly-Received Earnings Release
As hinted above, a trio of factors have been the key drivers for the latest Microsoft sell-off. First, starting a few weeks back, sentiment for tech stocks, especially tech stocks with high exposure to the generative artificial intelligence growth trend, shifted from bullish to bearish.
Why? There’s now greater concern about how much money tech firms like Microsoft are slated to spend on building out their respective AI infrastructures. An increasing number of market participants are questioning whether a big payoff will result from Big Tech’s spending spree.
This factor kicked off the Microsoft stock pullback starting around July 11. Not too long after that, a different sort of negative factor emerged. We’re talking, of course, about the recent CrowdStrike (NASDAQ:CRWD) outage. As we discussed a few days back, this outage in turn resulted in an outage for some Microsoft Windows-powered PCs around the globe.
The event also briefly placed some pressure on MSFT. The market has by-and-large come to the same “it’s a nothingburger” conclusion about the CrowdStrike incident. However, now it’s Microsoft’s latest quarterly results and guidance updates that are now pushing shares down to lower prices.
Don’t Fear the Pullback
Post-market on July 30, Microsoft released results for the quarter ending June 30, 2024. For the quarter, the company once again reported strong growth. Revenue and earnings were up 15% and 10%, respectively, year-over-year.
Unfortunately, not even these solid results were enough to convince Microsoft stock investors to begin bidding up shares again. Instead, more negative aspects to the earnings release were in focus. Namely, the fact that growth for Microsoft’s Azure computing unit came in slower-than-expected.
As cloud computing has been the first segment to receive a large growth boost from the AI growth trend, these lackluster results leave investors concerned that there’s questionable payoff potential for Microsoft’s decision to keep upping the ante with its AI wager. Again, a pullback could continue in the immediate-term, yet there’s no need to fear it.
Why? Because it’s by-and-large an overreaction. Cloud growth may have “missed” forecasts calling for 30.2% growth this quarter, but year-over-year growth of 29% is certainly nothing to sneeze at.
Guidance calls for cloud growth to come in at similar levels this quarter. AI growth is still humming along just nicely. It just may take some time for investors to become appreciative of it once again.
The Verdict: Stay Long and Stay Strong
With investors walking back their expectations, an ideal setup for down the road may be emerging. That is, between now and Microsoft’s next earnings release, channel checks could convey that rising adoption of GenAI technology is not slowing down one iota. With this, confidence in Microsoft’s future AI and cloud growth could rise once more.
This may enable shares to begin a recovery by the fall. If the company crushes it in its next earnings release, and by then sentiment about AI shifts backs toward bullish, MSFT could finish out 2024 strongly, setting the stage for additional waves of strong performance.
Remember, Microsoft’s earnings could surge from a reported $9.07 per share during the preceding fiscal year, to above $15 per share by fiscal year ending June 2026. By the fiscal year ending July 2027, annual earnings could come close to hitting $20 per share.
Even if the stock experiences some slight multiple compression, this level of earnings growth may prove sufficient to send MSFT to new all-time highs. Think $500, even $600 per share.
Considering this potential still on the table, stay long and stay strong Microsoft investors!
Microsoft stock earns a B rating in Portfolio Grader.
On the date of publication, Louis Navellier had a long position in MSFT and CRWD. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
