Is Microsoft Stock Too Cheap to Ignore After Its Latest Drop?

Key Points

• After the recent market correction, Microsoft stock is trading near its 52-week lows.
• Investors are concerned about the company’s AI infrastructure spending but may be discounting its highly profitable software business.
• Both fundamental and technical indicators suggest MSFT stock may be oversold, but investors may want to wait for the company’s earnings report to confirm this.

Microsoft Corporation NASDAQ: MSFT was already down about 9% for the year. So shareholders can’t be too scared of the additional sell-off in MSFT stock since the Trump tariff policy caused the markets to swoon. However, with the stock trading near its 52-week low and at a level not seen since October 2023, it’s fair to ask if the stock has become too cheap to ignore.

The primary reason Microsoft stock is under pressure is the company’s recent announcement that it would be cutting back on some data center spending. To be clear, the company is still planning on spending close to $80 billion on its AI initiatives. However, this move is more tactical in that those dollars will be deployed in a complicated political and regulatory environment.

Specifically, Microsoft is distancing itself from OpenAI and increasing its investment in distributed, smaller-scale data centers. The launch of DeepSeek is changing the conversation about AI infrastructure. Companies like Microsoft are hedging their spending commitments that lean toward a more edge-computing focus for AI infrastructure.

The takeaway for investors is that the AI bubble isn’t bursting, but there is growing clarity about how and where investment dollars need to be spent. For many investors, that means rethinking the price they pay for MSFT stock.

The Right Stock for Tough Times

It seems that uncertainty is the only certainty that investors can count on. At the beginning of 2025, inflation was the primary concern. The newly announced Trump tariffs are doing nothing to allay those concerns.

But now investors are also weighing what inflation will cause. On the one hand, some analysts are calling for a recession. But what may be worse is that some analysts are calling for stagflation, a nasty combination of higher interest rates combined with slower economic growth.

In either case, that will lead investors to look for the safety of blue-chip stocks, which don’t get much better than Microsoft.

It’s hard to ignore the impact of AI on Microsoft’s business, which explains the slide in MSFT stock. But the company has many revenue levers to pull and that’s why investors can point to Microsoft’s demonstrated history of growing its earnings and free cash flow regardless of macroeconomic conditions.

Remove Ads

One of those levers is software, an area where Microsoft sports double-digit margins. Much of the revenue in this sector is of the annual recurring type, which allows the company to increase its market share while increasing the switching costs for its customers. Plus, it reduces the company’s exposure to the direct cost pressures from any tariff policies.

Microsoft Stock Is Looking Attractive

Like all technology stocks, investors are looking at Microsoft’s valuation. They may like what they see. As of Apr. 8, MSFT stock was trading at 28.4x, trailing twelve-month (TTM) earnings. That’s over 10% higher than where the stock was valued in March 2020 (which coincided with the last sharp sell-off). However, compared to its 10-year average, MSFT doesn’t appear to be egregiously overvalued.

The Microsoft analyst forecasts on MarketBeat give the stock a Moderate Buy rating with a consensus price target of $508, which is a 41% upside from its price on April 8, 2025.

That may be cold comfort to investors who see a stock that’s only about 5% above its November 2021 level. But key technical indicators suggest that MSFT stock may be ready to move higher. The Relative Strength Indicator (RSI), as of Apr. 8, is around 31, which puts the stock in oversold territory. However, the stock is trading below both its 50-day and 200-day simple moving averages (SMAs).

Investors will want to see the stock break above $375, which correlates with the stock’s 10-day SMA, before making a buying decision. For that to happen, the stock will need a catalyst. That could come when the company reports earnings in late April. Analysts are forecasting 9% to 10% YOY growth in both revenue and earnings. If the company surprises and moves to the upside, investors are likely to remember the reasons that MSFT stock is an anchor in many portfolios.