Recently, many prominent stocks associated with artificial intelligence have lost their appeal, with Microsoft Corp (MSFT) experiencing perhaps the most significant decline. The software giant’s shares have struggled for months due to a series of disappointing earnings reports, leading to a re-evaluation of when the substantial investments—amounting to tens of billions of dollars—that it has made in AI will start to reflect positively in earnings and growth.
While Wall Street analysts generally maintain a positive outlook on Microsoft’s long-term prospects, the stock’s recent decline has eroded much of its valuation premium. Near-term catalysts for recovery appear limited, particularly amid increasing political uncertainty and weakening economic indicators that have adversely impacted the broader market.
“Microsoft exemplifies consistent cash flow, predictable earnings, and subscription-based revenue that isn’t as cyclical as chips; however, it hasn’t been shielded from the overall market downturn,” said Mark Luschini, chief investment strategist at Janney Montgomery Scott. “There were strong arguments that AI would enhance productivity and generate substantial profits, but that promise has turned into a ‘show-me’ scenario.” Among the so-called Magnificent Seven stocks, Microsoft has gone the longest without reaching a new high. The stock is down about 17% from its peak in July and closed at its lowest point since January 2024 on Monday. Its negative performance over the past six months contrasts sharply with the gains seen in both the Nasdaq 100 Index (^NDX) and an exchange-traded fund tracking the software sector during the same timeframe. Microsoft’s January results highlighted both the reasons for its recent inability to captivate investors and the reluctance of many to give up on it. The report revealed disappointing growth in its Azure cloud-computing division, partly due to a lack of sufficient data centers to meet demand. Although there was some growth in its AI services, the monetization of these products has progressed more slowly than many investors had hoped.
The absence of the anticipated AI breakthrough has been a recurring theme, and January marked the third consecutive quarterly report that resulted in a negative stock reaction, marking the longest such streak in over a decade, according to Bloomberg data.
