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Microsoft Corporation (NASDAQ: MSFT) shares are up about 16.65% in 2025, which is slightly below the S&P 500 Index’s 17.67%.
The stock also significantly underperformed some of its technology peers like Nvidia Corp (NASDAQ: NVDA), up 36%, Alphabet Inc. (NASDAQ: GOOG), 64%, Broadcom Inc. (NASDAQ: AVGO), 50%, and Advanced Micro Devices Inc. (NASDAQ: AMD), 78%, among others.
With investors potentially looking to take profits from some of the best-performing stocks in 2025, Microsoft could be among the few where the capital migrates to.
The company is well-positioned to capitalize on the continued adoption of artificial intelligence through its 27% stake in the most popular generative AI company, OpenAI, and through Azure cloud, which hosts several AI apps, including ChatGPT.
Microsoft Stock Technical Analysis
Microsoft shares hit a new all-time high of about $555 in late July before pulling back below $500 in September. The stock bounced back to retest the ATH in late October, but has now plummeted to $487.
The latest pullback saw the MSFT stock fall below the 100-day moving average before finding support at the 0.382 Fibonacci Retracement level, at $475. The stock faces immediate resistance at the 0.236 Fib level at $505, should the latest rebound continue.
The Relative Strength Index indicator also supports a short-term rebound, with the 14-day smoothed moving average bouncing back after being on the verge of entering oversold conditions.
Strong Earnings Report and Decent Outlook
Microsoft posted better-than-expected fiscal Q1, 2026 results, with revenue growing 18% year-over-year to $77.67 billion versus a forecast of $75.49 billion. Earnings per share also exceeded the expectation of $3.65, with $4.13.
Microsoft expects a slightly softer revenue growth compared to the previous quarter, with CEO Satya Nadella guiding 14%-16% for a top line of $79.5 to $80.6 billion in the earnings conference call.
This seems a little dovish from the management, especially given the company’s performance in the fiscal first quarter of 2026. However, with a less ambitious forecast, it also makes it easier for the company to beat its own projections.
MSFT Huge Institutional Ownership Provides Stability
The stock continued to experience significant institutional support, with notable investors such as CCLA Investment Management, Vanguard, State Street, Dan Loeb’s Third Point, and Peter Thiel increasing their stake in the company.
CCLA now holds 713,663 shares of Microsoft, valued at about $369.6 million, with the tech giant now representing about 5.9% of the firm’s portfolio, while Vanguard owns 705,077,786 shares worth over $350 billion.
State Street Corp, which raised its position by about 1% now owns 299,196,519 worth $148.8 billion. Overall, institutions own over 71% of Microsoft stock.
Azure Cloud and OpenAI
When you hear about AI stocks, Microsoft is often not the first stock that pops into mind. However, it is technically one of the major players in the industry, given its 27% stake in OpenAI and the Azure cloud, which now hosts multiple AI applications.
Nadella said in October that OpenAI has now contracted an incremental $250 billion of Azure services, with Microsoft’s exclusive IP rights and API exclusivity for Azure continuing through 2030. The companies also extended the model and product IP rights through 2032, further establishing a potentially stable stream of income for the various product lines.
Azure is now enabling customers from 33 countries to build their own cloud and AI capabilities, with the company highlighting OpenAI and SAP as good examples of companies that are using its cloud service to deliver new AI solutions to the public sector.
Microsoft is also building an Azure AI Foundry to help customers build their own AI apps and agents, as it looks to tap into its wide client base of more than 80,000 customers, including 80% of the Fortune 500.
Risks
Despite its underperformance in 2025, Microsoft still trades above its historical average in price-earnings ratio, with 35 versus 31, according to Full Ratio.
The company AI play impact is also under pressure from market risk amid growing concerns of a potential AI bubble.
Conclusion
In summary, Microsoft’s AI play seems to be significantly underrated, as demonstrated by its industry underperformance in 2025. With a majority of the top AI players experiencing massive gains, the MSFT stock is up just over 16% this year, also below the S&P 500’s over 17%.
Therefore, with the stock seemingly finding support at the 0.382 Fib level, Microsoft’s recent rebound could be the start of a major rally, going into 2026.