The artificial-intelligence trade concerns were swirling again on the back of disappointing Big Tech earnings. But Microsoft is at least one stock that Wall Street has been comfortable with. That trend has continued this week.
It's been a brutal stretch for the AI trade as earnings from the tech giants have sparked a selloff of AI-related stocks.
Alphabet logged its worst every daily percentage decline on Wednesday of 12.6% as the Google parent's core advertising business in search and YouTube faltered.
Shares of Intel dropped 26% in the premarket session on Friday after the company's earnings late Thursday showed soaring cost of memory chips was taking a toll on the PC market.
Then it was Amazon.com's turn and shares fell more than 6% in premarket trading on Friday after the company's quarterly earnings Thursday showed lagging growth in its legacy retail business and advertising segment.
While many of the core drivers of AI spending have suffered this week, shares of Microsoft, which Wall Street has now long been confident about, have held up reasonably well.
Microsoft stock declined 0.3% to $528.45 in premarket trading Friday after ending Thursday down 0.2%. Shares were on pace to close lower for a fourth consecutive trading session but the stock has only fallen about 1% over that stretch.
The stock, as of Wednesday, was also about 2% below its record closing high of $543.45 on Oct. 13.
It's a good sign for Microsoft investors that the shares have been able to weather the AI-trade turbulence this week.
It's even better news that Wall Street has overwhelmingly remained bullish on Microsoft stock following the software giant's strong quarterly earnings and decision to hold a mega bond sale to raise capital, finally joining rivals in issuing debt for the AI buildout.
Microsoft also recently announced it was offering 60,000 employees a voluntary exit to cut costs for its AI buildout.
Since July 29, when Microsoft reported solid fiscal fourth-quarter earnings that illustrated to the stock market that the company's AI spending has been paying off, Wall Street has becoming increasingly optimistic about the business. That's based on the belief the company is well positioned to boost revenue through its cloud platform, Azure, and Copilot, its AI assistant tool.
Microsoft's fiscal first-quarter earnings late Wednesday did nothing to change that view.
Since then, 27 firms have raised price targets on Microsoft stock, according to FactSet. Among those was Morgan Stanley analyst Adam Wood, who raised his price target to $650 from $600. That represented 22% upside from the closing price of $530.14 on Thursday.
Wood said in a research note that business growth from Azure and Copilot continues to accelerate and returns on AI investment are "clearly visible."
"With growth accelerating, AI monetization broadening, and infrastructure efficiencies supporting operating leverage, we view the Q1 print as another clear validation of our thesis that Microsoft's AI investments can drive durable high-teens revenue growth and more than 20% earnings growth," Wood said.
Morgan Stanley, which has an Overweight rating on Microsoft, wasn't alone in this view.
Bank of America analyst Tal Liani this week raised his Microsoft price target to $630 from $600 and maintained a Buy rating on the shares.
"MSFT's positioning across infrastructure, models, and software continues to provide multiple paths to monetize AI demand," Liani said in a research note.
Not to be outdone, Raymond James analyst Andrew Marok also raised his price target to $650 from $630 and reiterated his Outperform rating on the stock.
Marok noted that the business performance was "encouraging" and that Microsoft continues to work hard to "monetize existing capacity more efficiently despite ongoing supply constraints."
"Although these improvements suggest that Microsoft is making meaningful progress on returns from its infrastructure investments, their timing remains difficult to forecast, and spending is expected to accelerate," the analyst said.
Suffice it to say that it's all positive for Microsoft right now. The same can't be said for the rest of the tech giants.
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