Microsoft stock is currently facing its longest weekly losing streak since 2008, a situation that is testing the patience of the CNBC Investing Club. This downturn isn’t solely attributable to the broader market’s recent struggles; it’s also a reflection of the challenges Microsoft faces in the rapidly evolving artificial intelligence landscape.
While Meta Platforms is the only major tech stock to be up so far this year, Microsoft has lost nearly 9% over the past 12 months, significantly underperforming its megacap peers, which have seen substantial gains during the same period. The ironic twist is that this underperformance can be traced back to the very factor that once fueled its success: artificial intelligence.
In 2023, Microsoft stock surged nearly 57%, marking its best year in over a decade. The company benefited from its first-mover advantage in generative AI, largely through its investment and partnership with OpenAI, whose ChatGPT went viral shortly after its 2022 launch, igniting the current AI boom. At the time, Wall Street analysts lauded the revenue acceleration of Microsoft’s Azure, its crucial cloud computing division.
Shares of Microsoft continued to climb into 2024 but lost momentum in the second half of the year, closing at a record high of $467.56 per share in July. The stock struggled for the remainder of 2024, and this weakness has extended into 2025 as questions emerged about whether the software and cloud giant was losing its edge in AI.
“Microsoft has increased investment over the past few quarters at a very rapid rate while, at the same time, their revenue growth has decelerated,” said D.A. Davidson analyst Gil Luria. “They’re spending more to get less. That’s what investors have been worried about.”
Another concern, according to Luria, is that competitors are catching up. Amazon Web Services (AWS) has developed a large language model that rivals OpenAI’s GPT-4, which Microsoft uses in its data centers so that clients can run AI models in Azure. Amazon, also a Club name, now offers several models, including one from startup Anthropic. Alphabet’s Google and Meta have also made advancements with their AI models — Gemini and Llama, respectively.
Microsoft also has high hopes for its AI productivity tools, but Salesforce has become a major competitor. “A lot of things that Microsoft was first to a couple of years ago are now very, very competitive categories,” Luria noted. “Microsoft’s lead dissipated, and yet they continued to escalate their investments in data center capability.” He added, “That hurt their cash flow. It hurt their margins because they were so focused on AI that they dropped the ball on some of their other businesses, which is why the results deteriorated over the last couple of quarters.”
In fact, Microsoft has delivered light guidance in several recent quarters. Despite these past missteps, Luria and his D.A. Davidson colleagues recently became more bullish, upgrading their rating to a buy and raising their price target to $450 per share, a level that represents 16% upside as of Wednesday’s close. “Microsoft has moved to a more rational capex strategy and is the best positioned Mag6 for a slowing consumer,” the analysts wrote in their note, adding they believe shares “now properly reflect the drag from previous capex escalation.”
Part of this more rational approach involves Microsoft’s partnership with OpenAI. In January, the company announced that it is no longer OpenAI’s exclusive cloud provider. Moreover, there has been speculation that Microsoft is developing its own in-house AI model to rival ChatGPT.
“Microsoft’s moving away from OpenAI because it wants to start moderating [spending],” Luria explained. “OpenAI has been a big driver of Microsoft’s spending and now what Microsoft’s telling OpenAI is that, ‘We want to work with you all to the extent that it makes sense for us. If you want more data center capacity, you’ll have to go elsewhere to get it.'”
“Nothing good is baked into this stock now,” Jim Cramer said during the Club’s March Monthly Meeting. “While it’s too late to sell, we cannot recommend it because of its poor execution.” Faster AI-related sales paired with management moderating its capital expenditures are crucial for Microsoft’s future. Investors want to see if the billions of dollars put into Microsoft’s AI efforts are paying off. “Microsoft needs to get its house in order,” Jim added.
In his most recent Sunday column, Jim made the case that the handful of Big Tech stocks could rise from the ashes. He cited the group’s past outperformance following the collapse of Silicon Valley Bank in 2023. “I don’t want to make a case for buying these six bedraggled stocks just yet,” he wrote. “I am just putting it in your head that if we didn’t think they would collapse into recession along with the rest of the market two years ago, and we still believed in AI … then the Mag Seven, ex-Tesla, seem likely to be the only logical places to hide and then to buy.”
