Microsoft Corp (NASDAQ: MSFT) has lost nearly 13% over the past two months – a weakness that’s been broadly related to macro challenges like higher tariffs and fears of an economic slowdown ahead.
However, a Wall Street analyst argues that at least some of the decline in MSFT stock price is due to a factor that once was the company’s strongest suite: artificial intelligence.
Investors are bailing on Microsoft stock also because it may now be turning into an AI laggard, according to Gil Luria, a senior analyst at DA Davidson.
Microsoft falling behind in the AI race?
Microsoft has seen its revenue decelerate even though it has invested significantly more in recent quarters. “They’re spending more to get less,” Luria told clients in a research note.
Investors are also concerned because the competition in AI has been rising at an aggressive pace, Luria added.
Amazon, Google, and Meta have made significant advancements in their respective AI models.
“Microsoft’s lead dissipated and yet they continued to escalate their investments in data centre capability.
That hurt their cash flow, it hurt their margins,” Luria wrote in his report.
Versus their 52-week high, MSFT shares are down more than 15% at the time of writing.
MSFT offered weaker-than-expected guidance in January
AI productivity tools are broadly expected to serve as a meaningful drivers of growth for Microsoft moving forward.
However, the likes of Salesforce are quickly catching up on that front as well.
“A lot of things that MSFT was first to a couple of years ago are now very competitive categories,” according to the investment firm.
Microsoft’s relentless focus on artificial intelligence, in fact, made it slip up on some of its other businesses, which resulted in material weakness in its recent quarters, it added.
In January, the tech titan guided for up to $68.7 billion in revenue for its fiscal Q3. In comparison, analysts were at a higher $69.78 billion instead.
Should you sell Microsoft stock?
Despite aforementioned missteps, Gil Luria recommends buying MSFT on current levels as much of the bad news is already baked into the AI stock.
His $450 price target indicates potential upside of about 15% from here.
Luria is bullish on Microsoft stock as it’s getting some religion in terms of AI spending now and is the best positioned among “Magnificent 7” for a potential consumer slowdown ahead.
Note that DA Davidson is not the only firm that’s keeping bullish on MSFT. The consensus rating on Microsoft stock currently sits at “buy” as well.
What’s also worth mentioning is that Microsoft is a dividend stock now. It currently yields 0.85% that makes it at least a bit more exciting to own amidst fears of a recession ahead.
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