Microsoft Stock Hits 8-Month Low: Is It a Smart AI Investment Now?
Microsoft’s recent earnings report has sent its stock tumbling to an 8-month low, raising questions about its AI investments. Despite reporting solid revenue and income growth, investor reactions have been skeptical.
Microsoft’s Earnings Overview
For its fiscal second quarter, Microsoft reported a revenue of $81.3 billion, marking a 17% increase year-over-year. Operating income surged by 21% to reach $38.3 billion, resulting in an operating margin of 47%. Additionally, adjusted earnings per share rose 24% to $4.14. Nevertheless, the outlook for the third quarter fell short of investors’ expectations.
Key Financial Highlights
- Revenue: $81.3 billion (up 17%)
- Operating Income: $38.3 billion (up 21%)
- Operating Margin: 47%
- Adjusted Earnings per Share: $4.14 (up 24%)
- Azure Revenue Growth: 39% (intelligent cloud segment revenue: $32.9 billion)
Investor Concerns
Despite these impressive metrics, Microsoft forecasted a revenue guidance of $80.65 billion to $81.75 billion for Q3, which represents only a 15% to 17% growth rate. This sluggish growth in consumer businesses has led to investor wariness.
The company also predicted a 22% to 23% increase in cost of goods sold, likely impacting profit margins. Furthermore, anticipated capital expenditures are expected to decrease sequentially, contributing to a cautious outlook.
Market Reaction
The market’s response has been severe, erasing more than $400 billion from Microsoft’s market capitalization due to a double-digit drop in share value. Currently, the stock trades around $436.32, down over 20% from its peak last October. This sell-off appears excessive given the company’s strong fundamentals.
Is Microsoft a Smart AI Investment?
Despite these challenges, experts suggest that Microsoft continues to hold substantial value in the AI sector. With a price-to-earnings ratio of 25, based on fiscal 2026 estimates, the stock is now more attractively priced compared to the S&P 500.
Future Outlook
Microsoft’s Azure segment shows impressive growth, projected at 37% to 38% for the current quarter. The company still benefits from competitive advantages, which could support its recovery in the marketplace. Many analysts consider the current valuation to represent a strong buying opportunity for investors looking to capitalize on the future of artificial intelligence.
