Since last October, when Microsoft (MSFT 0.73%) surged to an all-time high of $540 per share, the stock has been in free fall. As of March 3, shares are down some 24% from those October highs to $410 per share.
The drop is in part due to investors rotating out of overvalued tech stocks, but there are also Microsoft-specific concerns that have caused the price to tank. Most of the decline came after Microsoft's fiscal second-quarter earnings report for the period ended Dec. 31. Shares plummeted more than 17% to below $400 per share on several concerns.
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Part of it was high capital expenditures (capex) and artificial intelligence (AI) spending for 2026. Investors are concerned that while Microsoft's Azure AI cloud computing revenue has been strong, it grew at a slightly slower pace last quarter. And the expectation for next quarter is even a little bit slower. We're talking a 40% growth pace falling to 37% to 38% growth, so it's not like a massive drop-off.
However, it was enough to rattle some investors, particularly when combined with the fact that Microsoft had record capex spending last quarter and anticipates even higher capex spending this fiscal year.
OpenAI concentration risk
The other concern is Microsoft's partnership with OpenAI. Much of its massive $625 billion in remaining performance obligations, or RPO -- AI contracts in the pipeline -- comes from OpenAI, about 45% to be exact, according to Microsoft CFO Amy Hood on the latest earnings call.
NASDAQ: MSFT
Key Data Points
There are worries about Microsoft stock because of fears that OpenAI won't be able to fulfill those contracts due to reports that OpenAI expects to lose money in 2026. Also, investors see the RPO numbers as perhaps inflated because some of the OpenAI RPO is from Microsoft's investments in the company.
Overall, it spells concentration risk for Microsoft as investors worry about the true value of the RPO.
Can Microsoft get to $500 per share this year?
These are valid concerns, but perhaps a bit overblown. Microsoft Azure's growth rate is still incredibly strong, and it continues to grow faster than Amazon.
OpenAI concentration risk should be watched, but the same report that said it will lose money in 2026 said the company expects to be profitable by 2029. Plus, OpenAI has grown at a historically fast pace, with 233% run rate revenue growth in 2025, so it remains a long-term growth engine for AI.
And Microsoft is actively expanding its AI reach, signing deals with Anthropic as well as inking a $50 billion deal to bring AI to Southern Hemisphere nations as part of the Global South initiative.
The fact is, despite these concerns, some of which are speculative, Microsoft is trading at its lowest valuation in years at 24 times earnings and 20 times forward earnings. Some 92% of analysts rate it as a buy with a median price target of $600 per share, which suggests 48% upside.
The $600-per-share target is for 12 months out, so that would indicate Microsoft would hit $500 per share within a year. Whether or not this happens remains to be seen, but the stock certainly looks well-positioned to do so.
