MSFT Stock Rebounds to $400, but Needs A Clear Bullish Break Soon or Sellers Will Return

Quick overview

Microsoft shares have rebounded above $400, but growing concerns over AI spending, intensifying competition, and lofty valuations continue to cast doubt on the sustainability of the recovery.

Microsoft Attempts Recovery After Sharp Selloff

Microsoft shares are attempting to stabilize after suffering a steep decline over the past two weeks, falling from approximately $466 to $380 before finding technical support. The stock has since recovered above the psychologically important $400 level, helped by improving market sentiment, but the rebound has been noticeably weaker than those seen across many other large-cap technology stocks.

The inability to produce a stronger recovery has left investors questioning whether buying interest is fading. If Microsoft fails to establish a convincing move above $400, sellers could quickly regain control should broader market sentiment deteriorate once again.

Geopolitical Relief Supports Markets

The broader technology sector received a boost after US officials announced a memorandum of understanding with Iran aimed at reducing tensions in the Middle East.

The agreement includes the planned reopening of the Strait of Hormuz, the gradual easing of sanctions tied to compliance milestones, and additional technical negotiations expected over the coming days. The prospect of reduced geopolitical risk encouraged investors to rotate back into equities while lowering exposure to defensive assets.

Oil prices declined as traders removed much of the geopolitical premium from energy markets, creating a more supportive backdrop for risk assets. Microsoft participated in the broader market rebound, although its gains lagged many of its technology peers, highlighting persistent concerns surrounding the company.

NHS Copilot Win Fails to Change Investor Sentiment

One of the more surprising aspects of Microsoft’s recent weakness is that it occurred despite securing one of the largest enterprise AI deployments announced to date.

NHS England confirmed plans to deploy Microsoft 365 Copilot to approximately 505,000 clinicians and support staff, making it one of the world’s largest workplace AI implementations in healthcare.

The rollout follows a successful pilot involving more than 30,000 users across 90 NHS organizations, where employees reported saving an average of 43 minutes per day on administrative work. The agreement also includes Copilot Studio, enabling healthcare providers to build customized AI assistants for operational tasks, financial analysis, workflow automation, and patient support services.

Despite demonstrating meaningful real-world adoption, the announcement failed to reverse investor pessimism. Markets largely overlooked the contract, choosing instead to focus on whether Microsoft’s enormous AI investments will generate sufficient long-term financial returns.

Rising AI Costs Revive Bubble Concerns

Investor attention has increasingly shifted toward the extraordinary level of spending required to maintain leadership in artificial intelligence.

Microsoft continues investing aggressively in AI infrastructure, including new data centers, cloud capacity, advanced computing hardware, and large language models. While management argues these investments are necessary to secure future growth, investors have become increasingly skeptical about the timeline for meaningful returns.

The debate has evolved beyond the potential of artificial intelligence itself. Instead, markets are questioning whether current valuations already assume an overly optimistic outcome.

This has revived concerns that the technology sector may be experiencing another investment cycle in which capital spending is expanding much faster than sustainable earnings, prompting renewed discussion of a possible AI-driven market bubble.

MSFT Stock Weakness – Breaks Key Support

Microsoft shares slipped below the critical $400 level last month but has reclaimed this level again after the surge last week, climb above $465. This area represents both psychological and technical resistance where a number of moving averages stand, making it an important line in the sand. Buyers failed to break above MAs on the weekly chart and we’ve seen 2 week pullback, with MSFT down to $380 again however today buyers are attempting to push MSFT above $400.

MSFT Chart Daily – The Price Returns Lower Again

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 around $200.

MSFT Chart Weekly – The 100 SMA Hold as Support

However the 50 monthly SMA (yellow) held as support once again and we saw a strong rebound in April and May. But, buyers gave up and sellers returned and MSFT stock has fallen to the 50 SMA again which held last week.

MSFT Chart Monthly – The Rebounding Off the 50 SMA Ran into the 20 SMA

OpenAI and Competitive Pressures Add Uncertainty

Microsoft’s close relationship with OpenAI has long been viewed as one of its most valuable strategic advantages. However, recent organizational changes have reportedly given OpenAI greater flexibility to work with multiple cloud providers, reducing Microsoft’s exclusivity.

Although Microsoft remains a major strategic partner, investors are increasingly reassessing how much long-term competitive protection the relationship still provides.

At the same time, competition across cloud computing and artificial intelligence continues to intensify. Rivals are rapidly expanding their own AI platforms and infrastructure, making it more difficult for Microsoft to maintain the technological lead that has supported premium valuations.

Regulatory risks also remain a concern. Ongoing scrutiny of Microsoft’s cloud business, software bundling practices, and AI integration creates another layer of uncertainty at a time when investors are already becoming more cautious toward the sector.

Strong Fundamentals Struggle to Offset Growing Risks

Microsoft’s underlying business remains healthy. Azure continues to deliver strong cloud growth, and the company has consistently exceeded earnings expectations. However, those positives are increasingly being overshadowed by the scale of planned investment.

Quarterly capital expenditures are expected to approach $40 billion, while total spending during fiscal 2026 could reach nearly $190 billion as Microsoft accelerates AI and cloud infrastructure expansion. Many investors now believe profitability may take significantly longer to materialize than current valuations imply.

Outside cloud computing, Microsoft’s gaming business continues to disappoint, with Xbox hardware revenue declining for a second consecutive quarter. Combined with mounting AI costs, intensifying competition, regulatory uncertainty, and broader concerns following weakness across the cloud sector, these factors continue to weigh on investor confidence.

While Microsoft’s rebound above $400 offers some technical encouragement, the recovery remains fragile. Unless the company delivers stronger evidence that its massive AI investments can translate into sustained earnings growth, rallies may continue to face selling pressure whenever market sentiment turns more cautious.

Microsoft Q3 2026 Earnings Highlights

Revenue beats expectations:

• Microsoft Corporation reported $82.9 billion in revenue, up 18% year-over-year, marking a record quarter and surpassing forecasts.

Profitability strengthens:

• Operating income rose 20% to $38.4 billion, while net income increased 23% to $31.8 billion, reflecting strong margin performance.

Earnings growth remains robust:

• Diluted earnings per share came in at $4.27, up 23% on a GAAP basis, signaling consistent bottom-line expansion.

Cloud Segment Drives Growth

Cloud revenue surges:

• Microsoft Cloud generated $54.5 billion, up 29% year-over-year, remaining the key growth engine.

Azure leads momentum:

• Azure and other cloud services grew 40%, highlighting strong enterprise demand for cloud infrastructure and advanced computing services.

ABOUT THE AUTHOR See More

Skerdian Meta

Lead Analyst

Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.

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