Microsoft (NASDAQ:MSFT) Facing Challenges Ahead

Microsoft (NASDAQ:MSFT) is a global juggernaut that should be above make-or-break cycles. The notion that Microsoft could face breaking at all might sound casually ludicrous to some, but the growing number of potential landmines staring Microsoft in the face is hard to ignore. Microsoft has a lot going for it, but as demonstrated by recent market activity, it's not invincible.

Recent Slips Have Left Microsoft on the Back Foot

Easily one of the biggest issues facing Microsoft right now is a new potential connection to TikTok, the beleaguered Chinese app that some believe is actually an espionage tool. Microsoft actually lost a little over 1% of its share value in pre-market trading today, and that loss is mostly based on recent moves to acquire TikTok's US operations.

While Microsoft—backed up for reasons that are unclear at best by Walmart (NYSE:WMT)—started bringing out the heavy lobbyist guns in Washington to help make the deal go through, there were signs that Microsoft itself was throwing its legal weight in entirely the wrong direction. China itself established new export restrictions specifically targeting a range of technologies from speech modeling to voice recognition systems. Under the new rules, such tools could not be exported without licensing from the relevant authorities in China.

Not The Only Shaky Spot for Microsoft

It would be easy to think that this wasn't the end of the world, if Microsoft—and Walmart—didn't manage to land TikTok. Sure, it wouldn't have been a bad thing for Microsoft to have a video sharing site which might, under the right conditions, have been Microsoft's YouTube, the way Bing is Microsoft's Google, but still, it's a survivable loss. There's a lot else going on at Microsoft, but not all of the news is good.

Gamers' eyes, for example, are squarely fixed on November, when some of the biggest games of the year are poised for release. Games like “Cyberpunk 2077”, “Assassin's Creed: Valhalla”, and “Call of Duty: Black Ops Cold War” are all set to arrive in November, but that's not all. Sometime in the deliberately vague “holiday season”, Microsoft is poised to release the latest incarnation of its Xbox console, the Xbox Series X.

Yet 2020 has already proven a problem for game releases, and will likely continue to prove a problem going into the holiday shopping season. With several games, including the aforementioned “Cyberpunk:2077”, getting delayed from their original release dates, that's going to put a crimp in Microsoft's plan to market systems that may not have much in the way of original games for a while.

While there are no signs that the Series X will see delays from “Holiday 2020” to “Eventually”,  we do know that Microsoft's ability to engage in marketing this year has been somewhat hampered. With E3—which normally dominates news cycles in June—shuttered and very little to replace it outside of Germany's Gamescom, which went wholly online this year, just what games will accompany the Xbox Series X's launch aren't exactly crystal clear. Worse, many of the games coming to the Series X will also be coming to the Xbox One, just not at full graphical power. The loss of “Halo: Infinite” to 2021 will undoubtedly slow some buyers' decisions to bring the system into their homes.

More Than Games and Video

The good point about Microsoft at this stage is that Microsoft is incredibly diversified. It's one of the biggest names in gaming. It's the de facto standard operating system for every new non-Apple or Chromebook PC out there. Its Skype system was part of the mix that fueled work-from-home growth in the second quarter, and will likely continue to be a part of the movement even as some cities start demanding employees return to offices to support crippled tax bases.

Microsoft also has a presence in several future developments; it's a big part of the NBA's post-coronavirus revival, helping to present the virtual stands as well as its “Together Mode”, a move which looks to make virtual interactions feel more like actual ones.

There's a lot going on in Microsoft that goes beyond games and video, and that will give Microsoft a real edge going forward. If one market proves softer than expected, another can swing in to pick up the slack. While fluctuations in Microsoft's share price are all but inevitable, the idea that Microsoft can weather the shocks is easy enough to embrace. Still, if enough goes wrong—and this has certainly been a year for things going wrong—it's a potential disaster afoot for Microsoft, and the rest of the market too.