Microsoft Corporation stock forecast: investors are discouraged, and the stock may fall to 400 USD

Microsoft Corporation’s Q2 2025 report disappointed investors. While revenue and earnings surpassed forecasts, significant expenditure on AI-based products and infrastructure (along with slower-than-expected Azure growth) raised concerns among market participants, causing the stock price to fall by 6% following the report’s release.

This article discusses Microsoft Corporation and its business activities, provides a fundamental analysis of its report, and includes a technical analysis of MSFT stock. This information forms the basis for a forecast of Microsoft’s stock performance for December 2024 and the upcoming 2025.

About Microsoft Corporation

Microsoft Corporation is one of the world’s largest technology companies, specialising in software development, computer hardware, cloud services, and other technologies. The company was founded on 4 April 1975 by Bill Gates and Paul Allen. Microsoft is renowned for its flagship products, including the Windows operating system, the Microsoft Office suite, the Bing search engine, the Azure cloud platform, Xbox gaming consoles, and various other innovations. It is actively expanding its initiatives in artificial intelligence, corporate solutions, and software development. Microsoft’s initial public offering (IPO) occurred on 13 March 1986, when its shares were listed on the NASDAQ stock exchange under the MSFT ticker. Today, Microsoft holds a leading position in the global technology industry.

Microsoft Corporation’s key revenue streams

Microsoft’s revenue comes from three core business segments – Productivity and Business Processes, Intelligent Cloud, and More Personal Computing. Each of these is described below:

1. Productivity and Business Processes: products and services designed to enhance productivity and business processes. This segment includes the following products:

   Microsoft Office (Office 365 and Microsoft 365) – software suites aimed at improving productivity and optimising business processes.

   LinkedIn – a professional networking platform.

   Dynamics 365 – cloud-based and on-premises business management solutions, including ERP (Enterprise Resource Planning) and CRM (Customer Relationship Management).

   The primary clients of this segment include corporate users, small businesses, and individuals.

2. Intelligent Cloud: cloud-based platforms and infrastructure for developing corporate solutions, including:

   Microsoft Azure – is one of the world’s largest cloud-based platforms, providing data storage, artificial intelligence, analytics, and app development services.

   Server products and licences – Windows Server, SQL Server, Visual Studio, and System Center.

   Support and consulting services – technical support, training, and cloud and server solutions customisation.

   This segment focuses on companies developing complex systems and apps based on cloud computing.

3. More Personal Computing: products and services aimed at individual users and personal devices, including:

   Windows – an operating system that forms the basis for managing computer hardware and software resources.

   Devices – the Surface line-up (laptops, tablets, hybrid devices) and accessories.

   Gaming business – Xbox consoles, Xbox Game Pass subscriptions, sales of games and accessories, and revenues from cloud gaming.

   Advertising – revenues from the Bing search engine and advertising on other Microsoft platforms.

   This segment is targeted at end users and original equipment manufacturers (OEMs).

Microsoft Corporation’s strengths and weaknesses

Microsoft Corporation has several strengths that provide it with a competitive edge in the market:

• Leadership in cloud technologies: Microsoft is a dominant player in cloud computing through its Azure platform, which competes with AWS from Amazon.com Inc. (NASDAQ: AMZN) and Google Cloud from Alphabet Inc. (NASDAQ: GOOG). Azure’s integration with Microsoft’s core enterprise solutions (Windows and Office) simplifies and enhances the cloud migration process for clients. Microsoft also holds a strong position in the corporate segment, where its solutions, including Office 365 and Windows Server, are considered industry standards
• AI innovation and development: the company heavily invests in artificial intelligence and innovation. A key example is the integration of OpenAI technologies into Microsoft 365 and Azure AI products. Microsoft’s software and device ecosystem ensures a seamless user experience through deep product integration. This includes Windows, Office, Xbox, and Surface, as well as widely used developer tools like Visual Studio and GitHub
• Strong position in the gaming sector: Microsoft has strengthened its presence in gaming through the Xbox Game Pass subscription service and the acquisitions of major game studios – Bethesda and Activision Blizzard. These strategic moves position Microsoft to compete successfully with Sony (NYSE: SONY) and Nintendo Co., Ltd
• Financial stability: Microsoft demonstrates consistent growth in revenue and profit, strong liquidity, and effective debt management, providing it with a significant competitive advantage. The company’s high financial liquidity allows for strategic investments in artificial intelligence, cloud technologies, and acquisitions of key market players. With a free cash flow of 74.1 billion USD, Microsoft is well-positioned for long-term investments and shareholder returns through dividends and stock buybacks. Unlike competitors that rely on borrowing to finance growth, Microsoft maintains a low debt level. Its long-term debt of 42.8 billion USD, combined with available cash of 78.4 billion USD, reduces dependence on external financing

Despite its numerous advantages, Microsoft faces several challenges that could impact its competitiveness:

• Microsoft product vulnerability to cyberattacks: as the most widely used operating system, Windows remains a primary target for hackers. Numerous vulnerabilities and large-scale cyberattacks highlight security weaknesses, which can undermine user trust, particularly among corporate clients, for whom reliability and data protection are top priorities. Competitors like Apple Inc. (NASDAQ: AAPL) offer more secure, closed ecosystems, posing additional risks to Microsoft
• Unsuccessful acquisitions: Microsoft invests heavily in acquiring third-party companies, but some have resulted in major setbacks. For example, its 2013 acquisition of Nokia’s mobile business failed, leading to a nearly complete write-off of the deal a few years later. Another misstep was the acquisition of Beam (later rebranded as Mixer), a streaming service discontinued in 2020. These cases highlight challenges in integration and overall strategic planning. Repeated failures in this area could damage the company’s reputation and financial stability
• Anticompetitive practices: Microsoft faces increasing scrutiny in the cloud services sector, with competitors accusing it of restricting access to popular programs like Office 365. These allegations could lead to fines and regulatory actions, further weakening the company’s position
• Overinvestment in AI: Microsoft’s aggressive investments in artificial intelligence, including its partnership with OpenAI and the integration of AI technologies into its products, carry substantial risks. The emergence of DeepSeek, a Chinese AI company whose product has achieved performance comparable to ChatGPT at a lower cost, highlights the competitiveness of the AI sector.

These challenges present potential risks to Microsoft, requiring a strategic, adaptive, and innovative approach to maintain its competitive advantage.

Microsoft Corporation’s Q1 2025 report

Microsoft released its Q1 fiscal 2025 report on 30 October 2024. Below are the key figures:

• Revenue: 65.6 billion USD (+16%)
• Net income: 24.7 billion USD (+10%)
• Earnings per share: 3.3 USD (+10%)
• Operating profit: 30.5 billion USD (+13%)

Revenue by segment:

• Productivity and Business Processes: 28.3 billion USD (+12%)
• Intelligent Cloud: 24.1 billion USD (+20%)
• More Personal Computing: 13.2 billion USD (+16%)

Microsoft’s management expressed a positive outlook on the Q1 fiscal 2025 results. Chairman and CEO Satya Nadella highlighted the company’s focus on AI transformation and its impact on business operations and workflows. Overall, AI revenue is on track to exceed 10.0 billion USD in annual revenue next quarter, marking the fastest growth in Microsoft’s history. He also noted that the company continues to expand its capabilities and attract new clients, enabling them to leverage AI platforms and tools for business development.

Looking ahead to Q2 fiscal 2025, Microsoft forecasted a continuation of the trends seen in the past quarter. Robust growth is expected from commercial clients due to long-term contracts, which will likely drive increased capital expenditure on AI.

Microsoft Corporation’s Q2 2025 earnings report

On 29 January 2025, Microsoft released its Q2 2025 financial results. The key figures are as follows:

• Revenue: 69.6 billion USD (+12%)
• Net income: 24.1 billion USD (+10%)
• Earnings per share: 3.2 USD (+10%)
• Operating profit: 31.7 billion USD (+17%)

Revenue by segment:

• Productivity and Business Processes: 29.3 billion USD (+14%)
• Intelligent Cloud: 25.5 billion USD (+19%)
• More Personal Computing: 14.6 billion USD (unchanged)

Investors were particularly interested in Microsoft’s response to the rapid rise of DeepSeek. In his remarks, CEO Satya Nadella addressed the impact of DeepSeek’s recent achievements in AI. He stated that while its developments are noteworthy, Microsoft remains committed to developing comprehensive AI solutions that integrate with its existing cloud and enterprise services seamlessly. He highlighted the company’s extensive infrastructure and ecosystem, which enable it to meet the growing demand for AI applications while ensuring scalability and reliability for clients worldwide.

CFO Amy Hood provided further details on Microsoft’s financial strategies amid the evolving AI landscape. She explained that the company’s capital expenditure was strategically justified and directed towards AI-driven data centres to support model training and the global deployment of cloud-based AI applications. Hood acknowledged investor concerns over increasing AI-related expenses but reassured them that stringent cost control and a focus on efficiency would enable Microsoft to expand its operating margin despite higher capital investment in this segment.

Overall, Microsoft’s leadership reaffirmed confidence in its AI strategy, stressing that its comprehensive approach and significant infrastructure investments position the company well to capitalise on the growing demand for AI services, even as competition intensifies.

Investors’ reaction to the earnings report was negative, driven by concerns over Azure’s projected growth falling short of expectations and a significant increase in capital expenditure.

Expert forecasts for Microsoft Corporation stock for 2025

• Barchart: 35 of 42 analysts rated Microsoft stock as a Strong Buy, four as a Moderate Buy, and three as a Hold, with an average price target of 510.23 USD
• MarketBeat: 27 of 30 specialists assigned a Buy rating to the shares, while three rated it as Hold, with an average price target of 512.66 USD
• TipRanks: 27 of 30 professionals recommended the stock as a Buy, while three rated it as Hold, with an average price target of 512.77 USD
• Stock Analysis: 12 of 31 experts rated the stock as a Strong Buy, 17 as a Buy, and two as a Hold, with an average price target of 512.07 USD

None of the experts recommended selling Microsoft Corporation stock.

Technical analysis and 2025 forecast for Microsoft Corporation’s stock

Microsoft Corporation stock is trading within an ascending channel and reached its upper boundary in February 2024, after which growth stalled. In July 2024, the stock price rose to 465 USD, reaching an all-time high, before declining to 383 USD. Since then, the shares have been trading near 430 USD. Attempts to rise above this level result in a pullback, while a move towards 400 USD is followed by another rebound.

According to the quarterly report, one of the largest buyers of Microsoft stock is the company itself, having spent 9.7 billion USD on share repurchases last quarter. Based on Microsoft Corporation's stock performance, potential price movements for 2025 are outlined below.

The optimistic forecast for Microsoft Corporation stock suggests a test of the 400 USD support level, followed by a rebound and a rise to 480 USD. If the price continues to increase, the next upside target will be 540 USD. These targets were determined using Fibonacci levels.

The pessimistic forecast for Microsoft Corporation stock anticipates a breakout below the 400 USD support level, leading to a decline to 360 USD before a potential recovery. However, the company announced a 60.0 billion USD buyback in September 2024 but spent only 9.7 billion USD last quarter. This suggests that Microsoft will continue repurchasing shares in 2025, creating demand for the stock.

Summary

Microsoft’s Q2 2025 earnings report reinforces its position as a key player in AI and cloud computing, supported by a strong financial foundation that enables continued investment in AI-driven infrastructure. The company’s management remains confident that its AI strategy will drive revenue growth and preserve its competitive edge.

The mention of DeepSeek highlights Microsoft’s awareness of intensifying competition in the AI sector. However, its extensive cloud infrastructure and strong corporate client relationships present a significant barrier to entry for competitors. Nonetheless, AI competition continues to intensify, and Microsoft will need to maintain operational efficiency to justify its elevated market valuation. Investors should closely monitor how the company navigates rising AI-related costs and increasing competition in the coming quarters.