Key Takeaways:
Microsoft shares surged 5% to $371 on Friday, offering a rare bright spot for a stock down 25% this year as investors weigh what it would take to reclaim the $500 mark.
Microsoft Corp. shares jumped 5% to $371 on Friday, snapping a prolonged slide that has erased a quarter of the software giant's value this year.
"The selloff has been overdone relative to Microsoft's core earnings power," said Keith Weiss, an analyst at Morgan Stanley who rates the stock overweight. "The memory cost headwind is real but transitory."
The rebound came as semiconductor and memory stocks stabilized after a volatile week. Microsoft has lost roughly $800 billion in market capitalization from its 2025 peak, dragged by concerns over AI-related capital spending and rising component costs that prompted price increases on some products. 'Big Short' investor Michael Burry disclosed call options on the stock with a strike near $700, betting on a recovery through 2028.
Reaching $500 would require a 35% rally from current levels — a move that would restore roughly $400 billion in market value. The next catalyst comes in late July when Microsoft reports fiscal fourth-quarter earnings, with analysts watching for signs that Azure growth and AI revenue can offset margin pressure from memory and data center costs.
The stock's year-to-date decline of 25% makes it one of the worst performers among the so-called Magnificent Seven, trailing only Tesla and Nvidia. Microsoft now trades at roughly 28 times forward earnings, below its five-year average of 32 times, according to data compiled by Bloomberg.
The selloff has been driven by two overlapping concerns. First, the memory cost squeeze — Micron Technology Inc.'s blowout earnings this week showed gross margins hitting 85%, a sign that chip suppliers are capturing an outsized share of the AI spending cycle. Apple Inc. raised prices on MacBooks and iPads this week to offset those costs, and Microsoft followed with price increases on select products.
Second, investors are questioning the return on Microsoft's massive AI infrastructure buildout. The company has committed tens of billions of dollars to data center expansion and OpenAI partnerships, with no clear timeline for when those investments will translate into proportional revenue growth.
The Burry Bet and the Bull Case
Michael Burry's Scion Asset Management disclosed on Thursday it had purchased call options on Microsoft with a strike price in the low $700s expiring in December 2028. The position reflects a bet that the current selloff has created a multiyear buying opportunity in one of the few mega-cap tech stocks with a diversified revenue base spanning cloud, productivity software, gaming, and enterprise AI.
For Microsoft to reach $500, analysts estimate the company would need to deliver Azure growth above 30% and demonstrate that AI services like Copilot are driving measurable enterprise adoption. The stock traded above $500 as recently as November 2025 before the Iran conflict and rising rates triggered a broad tech rotation.
The broader market backdrop remains mixed. The S&P 500 is on pace for a weekly loss of nearly 2%, while the tech-heavy Nasdaq Composite has shed more than 4% this week. The 10-year Treasury yield held at 4.39%, and oil prices fell below $70 a barrel for West Texas Intermediate crude as shipping resumed in the Strait of Hormuz.
This article is for informational purposes only and does not constitute investment advice.
