Shares of Microsoft (MSFT 1.13%) haven't fallen this hard since the inflation panic of 2022. The stock has plummeted almost 24% since the start of the year and 31% from last summer's peak, despite strong revenue growth and earnings. Microsoft's fundamentals are on solid ground, so is the downward trend really a buying opportunity?
NASDAQ: MSFT
Key Data Points
First, we need to understand why the market soured so quickly on Microsoft. Much of it has to do with the exorbitant amount of money allocated to capital expenditures this year. Microsoft could spend more than $120 billion. The top tech companies could spend a staggering $700 billion this year on AI infrastructure and investments. This spending, of course, will affect its short-term cash flow, with the hope that the increased cash investments will pay off in the long run. Wall Street, however, is not convinced.
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Competition in AI is also increasing and negatively impacting Microsoft. Anthropic in particular poses a direct threat to Microsoft's Copilot tools. Anthropic is extremely well funded, having closed a $30 billion Series G round in late February.
Don't throw in the towel on Microsoft just yet. Its fundamentals are strong, and the company is positioned to weather most short-term headwinds. In its latest quarterly report, revenue rose 17% to $81.3 billion. Net income and diluted GAAP earnings per share both increased a whopping 60%. Microsoft's remaining performance obligations (RPOs) also grew 110% to $625 billion.
In my view, Microsoft's sell-off is largely overblown and driven by impatience and reactionary fears rather than actual red flags in its business. Taking a step back, Microsoft's stock is still up over 570% in the past 10 years. The company's competitive moat, stellar balance sheet, and reliable product demand will keep it competitive for the foreseeable future.
A 24% price drop is a rare opportunity to buy for patient, long-term investors.
