Microsoft has long been one of the biggest winners of the AI boom. However, the same technology that helped push the company to new heights is making investors nervous. As Microsoft spends billions to stay ahead in artificial intelligence, many on Wall Street are beginning to wonder if those investments will pay off or if AI could one day replace the software that made Microsoft a tech giant.
Microsoft stock has dropped about 17% in June
Microsoft shares are on track for their biggest monthly drop since the dot-com era, as investors continue to worry about the company’s future in the age of artificial intelligence, as reported by Bloomberg. As of June 29 at 11:47am ET, Microsoft shares were trading at $370.89, down 0.56% for the day, a fall of $2.08.
As reported by Bloomberg, the stock has dropped about 17% in June. If it ends the month at that level, it will be Microsoft’s worst monthly performance since December 2000, when its shares fell 24.4%.
As reported by Bloomberg, the sharp selloff has wiped out more than $570 billion in market value. On Thursday, the stock closed at its lowest level since 2023 before recovering slightly on Friday.
Investors are worried about AI from both sides
Investors fear Microsoft is facing a double challenge. The company is spending huge amounts of money to build AI technology, but some also worry that AI could eventually replace Microsoft’s own products, such as Word and Excel.
“Microsoft is getting hit on two sides with worries about both AI spending and AI disruption,” said Jack Ablin, chief investment strategist at Cresset Wealth Advisors, which owns the stock told Reuters. “While it looks like a pretty good deal with the valuation so low, I’m getting the sense that investors are shooting first and asking questions later.”
“Whether Microsoft Word or Excel will be rendered obsolete by AI remains to be seen,” Ablin said. “But the spending is certainly a concern, especially since so many are going to the bond market to borrow, suggesting their cash piles won’t be enough to sustain the buildout.”
Microsoft’s stock has become much cheaper
The recent selloff has pushed Microsoft’s valuation to its lowest level in about 10 years. The stock is now trading at around 19 times its expected earnings over the next 12 months. That is even cheaper than the S&P 500, which trades at about 20 times earnings, and well below Microsoft’s 10-year average valuation of 27 times earnings.
Regardless of being one of the world’s biggest software companies, Microsoft has been under heavy selling pressure as investors question whether its massive AI investments will generate enough returns, as reported by Bloomberg.
Some analysts still see long-term value
Not everyone on Wall Street believes the recent selloff is justified. Deutsche Bank analysts, led by Brad Zelnick, remain optimistic about Microsoft’s future despite the sharp decline.
“[We have] incremental confidence in Microsoft and its ability to sustain and expand company-level operating margins and continue compounding robust, value creative growth in the years ahead,” Deutsche Bank analysts led by Brad Zelnick wrote Friday.
Azure outlook added to investor concerns
In its fiscal third-quarter results released in late April, Microsoft forecast only “modest” growth for its Azure cloud computing business. At the same time, the company raised its estimate for capital spending this year to $190 billion, showing that it plans to continue investing heavily in AI infrastructure. The combination of slower cloud growth and rising AI spending has made some investors more cautious.
Disclaimer: This article provides factual analysis only and is not, and should not be construed as, an offer, solicitation, or recommendation to buy or sell securities. Investors must conduct their own independent due diligence and seek advice from a registered financial advisor in the respective jurisdiction.