Microsoft stock stumbles; why and how AI may be to blame

Microsoft's stock price has hit a snag in recent months, falling behind the broader tech market. This slowdown coincides with a cooling sentiment towards AI as a major stock market driver. According to a report in Bloomberg, Microsoft's share price has only grown 1.3% in the past six months, compared to a nearly 10% gain for the Nasdaq 100. The stock is also 8% below its all-time high.
“There’s some AI fatigue when it comes to companies like Microsoft, given the incredible run they’ve had,” told Neville Javeri, senior fund manager at Allspring Global Investments, to Bloomberg.Investors “need to see additional proof points about demand for AI products and services for the rally to hold,” he added.

Muted AI Impact: Investors are looking for stronger evidence of AI's impact on Microsoft's bottom line. Mixed results in the latest quarter and competition catching up in the AI space have contributed to the disappointment.
Valuation Concerns: Microsoft trades at a premium compared to its historical average and the broader tech market, raising questions about justification for its current price.
Rising Competition: “Competition has largely caught up with Microsoft on the AI front, which reduces the justification for the current premium valuation,” analyst Gil Luria wrote in a note last week, citing cloud rivals Amazon.com Inc. and Alphabet Inc. A diminished lead in AI “will make it hard for MSFT to continue to outperform,” Luria said, downgrading the stock to neutral from buy.
Oracle's Emergence: Oracle's recent strong AI-fueled results have attracted investors seeking alternatives with lower valuations.
Despite the short-term challenges:

The fall in Microsoft's stock growth rate, however, has not worried analysts so far per se. As most analysts reportedly still find Microsoft's long-term prospects promising, with projected revenue growth of 14.5% in 2025 and reaching 19% by 2028. Over 94% of analysts still rate Microsoft stock a buy.
Even with the recent dip, Microsoft shares are still up 14% year-to-date and 57% in 2023. While Microsoft may be experiencing a temporary setback due to shifting market sentiments, its long-term prospects remain strong is the general consensus. The company's size, quality, and projected growth position it as a potentially attractive investment opportunity, especially if the stock price dips further.