Microsoft (NASDAQ:MSFT) remains a titan in the tech industry.
It is known for its iconic Windows operating system, Office productivity suite and Xbox gaming platform. However, in recent years, the company has undergone a remarkable transformation, shifting its focus toward cloud computing and emerging technologies.
Now, its Azure cloud platform and strong presence in the enterprise software market drive the company’s impressive growth. In recent months, Microsoft stands among the ranks of companies paving the way for the developments in artificial intelligence (AI).
As a result, MSFT stock reached an all-time high of $468.35 in early July. However, since the second half of July, as tech stocks have come under pressure, MSFT shares have retreated 15% from that peak. Year-to-date (YTD), the stock has nevertheless performed well, gaining more than 7%. In fact, MSFT stock has slightly outperformed the Technology Select Sector SPDR Fund (NYSEARCA:XLK), which has gained over 6% YTD.
We believe Microsoft’s long-term outlook remains bright, especially due to its Azure platform, the key driver of the company’s growth. Yet, at this point, a cautious approach could be prudent. It may be wise to refrain from buying MSFT in the immediate term. However, looking beyond the recent volatility, Microsoft stock has solid long-term prospects.
Implications of the Recent IT Glitch
Last month, the tech industry was rocked by a significant IT crisis stemming from a problematic update released by CrowdStrike (NASDAQ:CRWD). The update inadvertently caused widespread disruptions across various platforms worldwide, including Microsoft Windows devices. Initial numbers showed that over 8.5 million Windows devices were affected.
However, the fallout from the incident may not be limited to technical challenges. Concerns are brewing whether or not companies affected by the outages may seek legal action against Microsoft and other parties involved. Delta Air Lines (NYSE:DAL), has already indicated that it may sue CrowdStrike and others, citing significant losses due to flight cancellations and delays.
If more companies follow suit, Microsoft could face a wave of legal troubles. And this could weigh on Microsoft’s financial performance and reputation in the short run. To prevent similar incidents in the future, the company may also have to take additional steps. So this could mean increased costs. Therefore, potential Microsoft investors need to keep an eye on the developments regarding the fallout from the most recent IT glitch.
Short-term Technical Charts Urge Caution
If you are an investor who analyzes technical charts before deciding to buy stocks, then a short-term MSFT stock chart analysis urges prudence. At present, we are mindful of the Microsoft price trading below its 50-day moving average (MA), which stands around $406.02. This divergence suggests potential continued volatility and even weakness for Microsoft in the coming weeks.
Similarly, the Moving Average Convergence Divergence (MACD) analysis is also suggesting a short-term bearish outlook. The MACD is a technical indicator used to gauge the momentum and the direction of a stock, such as Microsoft, by comparing two moving averages. This bearish trend in MACD suggests that the more immediate momentum of Microsoft’s stock is weaker compared to its long-term momentum. Hence, investors see the potential downward pressure on the MSFT stock price.
As a result, some expect the $400-level to become a battle ground for Microsoft stock. In case of further volatility in the tech sector, a retest of the recent lows around $385 is possible. Such a decline would then be followed by a period of consolidation in MSFT shares within a band of 7-8% range in each direction. Only then can a new leg up start in Microsoft stock. Understandably, potential investors need to combine these tools with other technical indicators and fundamental analysis for a more comprehensive view of MSFT stock’s potential future movements.
Long Term Microsoft Stock is Still Bullish
Looking beyond the immediate concerns, the long-term prospect for MSFT stock remains bright. In late July, Microsoft reported Q4 of fiscal year 2024 earnings which showcased robust performance and strong growth across its segments.
Revenue increased 15% year-over-year (YOY) to $64.7 billion. Meanwhile, net income and diluted EPS grew by 10% YOY to $22.0 billion and $2.95, respectively. Microsoft’s Intelligent Cloud segment led the way with a 19% revenue increase to $28.5 billion. This growth was driven primarily by the 29% YOY increase in Azure and other cloud services.
On Wall Steet, analysts’ long-term sentiment on Microsoft remains overwhelmingly positive. At present, the 12-month median price forecast of $500.07 for MSFT stock suggests a 23.16% upside potential.
In conclusion, for long-term investors, MSFT is a solid investment. Yet, at this point, they could wait for a more favorable entry point, possibly around $385.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
