MSFT Stock Tries to Revive Uptrend on Barclays Bet Despite Downgrade, Yet Margin Concerns Persist
Microsoft shares rebounded after a sharp sell-off as analysts flagged deeply oversold valuations, though rising AI investment costs continue
Quick overview
- Microsoft shares rebounded after a sell-off, as analysts noted deeply oversold valuations despite concerns over rising AI investment costs.
- The stock's recovery was fueled by a shift in sentiment towards established software leaders, with investors rotating back into companies like Microsoft.
- A recent downgrade by Stifel analyst Brad Reback prompted a significant repricing of Microsoft's stock, reflecting skepticism about future growth and margins.
- While Microsoft's fiscal second-quarter results exceeded expectations, the market's negative reaction underscores a shift in investor focus towards capital efficiency and return on investment.
Live MSFT Chart
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Microsoft shares rebounded after a sharp sell-off as analysts flagged deeply oversold valuations, though rising AI investment costs continue to raise questions about margins and near-term execution.
Valuation Reset Triggers a Technical Rebound
Microsoft stock fell sharply below the $400 level last week despite delivering an earnings beat, as investors reassessed the company’s expanding AI investment burden. The sell-off reflected growing unease over capital intensity, valuation, and the pace at which artificial intelligence spending can translate into durable profit growth.
On Monday, however, shares staged a strong rebound. Several analysts argued that the recent “SaaSpocalypse” sell-off—driven by fears that autonomous AI agents could disrupt traditional subscription models—had pushed large-cap software valuations into deeply oversold territory. That reassessment sparked opportunistic buying, particularly among institutional investors seeking exposure to high-quality incumbents.
Investors Rotate Back Into “Sticky” Software Leaders
The rebound was also supported by a broader shift in sentiment across the software sector. After heavy selling in early 2026, investors began rotating back into established platforms with entrenched enterprise relationships.
A Barclays report helped anchor this view, noting that corporate migrations away from legacy systems tend to unfold over years rather than quarters. Compliance, security, and governance requirements create significant friction, reinforcing the durability of incumbents like Microsoft. While AI may reshape how software is consumed, analysts argue it is unlikely to dismantle entrenched enterprise ecosystems overnight.
A Market Reset Reframes Expectations
Microsoft’s stock has undergone a notable repricing in recent months, signaling a broader reset in how investors are assessing mega-cap technology leaders. After peaking above $555 in October, shares retreated sharply, shedding more than $1050 at their lowest point and briefly slipping below $400.
MSFT Chart Monthly – Heading Toward the 50 SMA
The stock attempted a recovery, rebounding to around $483 ahead of the latest quarterly report. However, renewed concerns around surging AI costs reversed that move, sending MSFT lower again and placing the psychologically important $400 level firmly back in focus, which was broken today as MSFT fell to $392 now facing the 50 monthly SMA (yellow) which seems like it held again.
If the 50 SMA would break, then the next target would be the April 2025 low of $345. But for now the larger uptrend is still in play, and this pullback to the 50 SMA seems like another retrace before the upside momentum resumes again, but we might also see a breakdown below the 50 monthly SMA.
A Rare Downgrade Forces a Hard Repricing
The recent volatility intensified after Stifel analyst Brad Reback downgraded Microsoft to Hold from Buy, delivering one of the sharpest revisions seen in the name in years. More notable than the downgrade itself was the cut to the price target, which fell to $392 from $540, a reduction of roughly 27%.
Reback cited overly optimistic consensus assumptions, particularly around revenue growth and margin resilience in the face of surging AI-related capital expenditures. The downgrade acted as a catalyst for repricing, forcing investors to reconsider how much growth is already embedded in the stock.
Earnings Beat Fails to Calm the Market
Microsoft’s fiscal second-quarter results were solid by traditional metrics. Revenue reached $81.27 billion, exceeding expectations, while adjusted earnings per share came in at $4.14, comfortably ahead of forecasts.
Yet the market response was telling. Shares fell roughly 5% in after-hours trading and continued lower the following session. The reaction highlighted a broader shift in investor psychology: earnings beats are no longer enough when forward margins, capital efficiency, and return on investment are under scrutiny.
AI Spending Takes the Spotlight
At the center of the debate is Microsoft’s accelerating capital expenditure. Quarterly capex surged to $37.5 billion, up nearly 66% year over year, driven by investments in AI infrastructure, data centers, and custom silicon.
Azure revenue growth of 39% confirmed strong demand, but costs are rising quickly. Revenue increased 17%, while the cost of revenue climbed 19%, raising concerns that margin pressure may persist longer than anticipated. Management also warned that higher memory-chip prices could further weigh on cloud profitability.
Monetization Timing Remains Uncertain
While AI adoption is expanding, the timeline for high-margin monetization remains unclear. Many enterprise customers are still in experimentation phases, and pricing power has yet to fully materialize.
Until there is clearer evidence that AI workloads are translating into sustained margin expansion—not just top-line growth—investors are likely to remain cautious. The recent rebound suggests valuation support is emerging, but confidence will ultimately depend on Microsoft’s ability to balance ambition with disciplined execution.
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