Following its worst quarterly performance since the 2008 financial crisis, analysts predict a potential upside of 40% to 60% for Microsoft, as the company is currently trading at its lowest valuation in a decade, News.Az reports, citing foreign media.
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Microsoft is heading into the end of the first quarter in worse shape than it has been in nearly two decades. Shares have fallen roughly 24% year to date, putting the stock on course for its worst quarterly performance since 2008. After hitting a yearly high of $481 in January, it has pulled back to around $356. The slide has made it one of the weakest performers among the Magnificent Seven tech stocks, and it has drawn the attention of analysts who say the selloff has pushed valuation into territory that looks genuinely attractive.
What is driving the selloff
The pressure on Microsoft stock this quarter has come from multiple directions at once. Investor concerns about whether the company’s massive artificial intelligence spending will deliver proportionate returns have weighed on the entire sector, and Microsoft has not escaped that broader reset. The company has projected over $146 billion in AI infrastructure spending, and the market has grown increasingly impatient waiting for those investments to translate into accelerated earnings growth.
A fraying relationship with OpenAI has added to the uncertainty. Reports have surfaced of disagreements over cloud exclusivity and potential legal action tied to OpenAI’s growing use of infrastructure outside of Microsoft’s Azure platform. The partnership, which has been central to Microsoft’s AI identity for several years, appears to be under more strain than previously disclosed.
The broader technology sector has also been hit by a market rotation into defensive areas including energy and consumer staples, accelerated by the ongoing U.S.-Iran conflict. The Roundhill Magnificent Seven ETF fell 16% in the first quarter, its worst run since the fund launched in 2023. Among the group, Nvidia has held up best with a decline of roughly 4%.
Why analysts are not walking away
Despite the damage, the analyst community has not blinked. Bank of America reinstated coverage on Microsoft last week with a buy rating and a $500 price target, implying roughly 40% upside from current levels. The firm cited Microsoft’s position in AI cloud and enterprise software markets and projected sustained mid-double-digit growth over the next three years, driven by Azure, Microsoft 365 and an expanding portfolio of AI services.
The broader analyst consensus is even more optimistic. Of 57 analysts covering the stock, 54 rate it a buy or higher and three rate it a hold. The average price target sits at $589.90, representing more than 60% upside from the most recent close.
The valuation case behind those targets is straightforward. Microsoft’s 12-month forward price-to-earnings ratio has fallen to its lowest level in nearly a decade. For the first time since 2015, the stock is trading at a discount to the S&P 500. Its relative strength index, a technical measure of momentum, stood at 22.26 as of late March, the second lowest reading in the Nasdaq 100 and below the threshold of 30 that typically signals a stock is oversold.
The business case behind the numbers
Whatever the stock has done this quarter, the underlying business has continued to grow. Azure, Microsoft’s cloud computing division, is generating roughly $30 billion per quarter, with year-over-year growth of approximately 39%. The broader Intelligent Cloud segment has consistently posted growth in the mid-to-high 20% range. Microsoft claims that over 80% of Fortune 500 companies use its AI tools, and adoption of Microsoft 365 Copilot across large enterprises has accelerated as companies look to automate tasks and improve productivity.
Analysts project annual revenue growth of 12% to 15% over the next several years, led by cloud expansion, subscription services and increasing returns on AI investment. Earnings per share are expected to grow at a low-to-mid-teens pace as operating margins improve across the company’s high-margin software businesses.
The comparison to 2008 is instructive but imperfect. That year’s decline was driven by a global banking collapse and a contraction in consumer spending. This year’s pressure reflects investor skepticism about the pace of AI returns, not structural failure in Microsoft’s core business. Azure barely existed in 2008. Today it anchors a cloud operation that generates more revenue in a single quarter than many companies earn in a year. In the 17 years since that prior low, Microsoft stock has risen more than 1,000%.
Retail investors take notice
Sentiment among individual investors has shifted noticeably. On Stocktwits, message volume around Microsoft’s ticker climbed 75% over the past week and reached an extremely bullish reading as of late Sunday. Some traders described the pullback as a generational entry point. Others remained cautious, arguing the stock will not stabilize until Microsoft addresses its AI capital expenditure plans or broader market pressure from the energy crisis eases.
Both views reflect a market still working through genuine uncertainty. The discount is real. Whether it is enough depends on how quickly the AI infrastructure spending starts showing up in the numbers.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. The author and publication are not registered investment advisors and do not provide personalized investment recommendations.
