The Dow Jones Industrial Average (^DJI -0.59%) moved 3.2% higher in August, with five of its 30 constituent stocks rallying over 10% each. While the laggards didn't decline as sharply, the fall in two of the three worst-performing Dow stocks of August was hard to justify.
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1. Microsoft: Down 5%
Shares of Microsoft (MSFT 1.82%) fell 5% last month because investors booked profits after the tech stock soared to all-time highs of $555.45 on July 31, and its market capitalization briefly surpassed $4 trillion for the first time ever.
On July 31, Microsoft posted 18% revenue and 24% net income growth for its fourth quarter, driven by artificial intelligence (AI) and cloud computing. Its cloud computing unit Azure logged the biggest revenue jump of 39% among all products. Microsoft projects double-digit growth in revenue and operating income for fiscal year 2026 (ending June 30, 2026).
2. Caterpillar: Down 4%
Shares of Caterpillar (CAT -0.07%) hit all-time highs of $441.15 on July 31. But unlike Microsoft, Caterpillar's numbers sent the stock 4.3% lower in August.
Caterpillar's second-quarter revenue declined 1%, and earnings per share slumped 16% year over year on unfavorable pricing. Although the construction and mining equipment giant expects higher revenue in 2025, it sees tariffs as a significant headwind to profitability. It projects free cash flow from its machinery, energy, and transportation businesses to be around $7.5 billion in 2025, versus $9.4 billion last year.
3. International Business Machines: Down 3.8%
International Business Machines (IBM -1.34%) stock dropped sharply on July 24 after releasing Q2 numbers and continued to fall through August, losing 3.8% in the month. Ironically, IBM's revenue rose 8% year over year, and management now expects 2025 free cash flow to exceed its guidance of $13.5 billion, driven by growth in software.
Software alone made up 43% of IBM's revenue in Q2. Last year, IBM generated $12.7 billion in FCF.
IBM shares fell because its software revenue growth missed analysts' estimates. Investors know better, though, as the tech stock has recovered 5.5% this month, as of this writing.
