Investing.com -- Microsoft shares are at a critical technical level, and failure to hold current support could lead to further downside, according to Wolfe Research analysts in a note Tuesday.
"Microsoft (NASDAQ:MSFT) really needs to make a stand here," Wolfe Research wrote in its technical analysis piece.
The firm noted that the stock has been forming a topping pattern for months. Microsoft closed at $388.49 on Monday, hovering near Wolfe’s initial downside target of $385.
If the stock fails to hold this level, Wolfe warned that “this yearlong top has the potential to count to $315-335.”
The range represents around a 15-20% decline from current levels.
The selloff in Microsoft has come amid broader weakness in artificial intelligence-related stocks. The company’s recent earnings report in late January failed to spark investor enthusiasm, marking the third consecutive quarter of negative post-earnings reaction.
While its AI services showed growth, monetization has been slower than expected, and concerns have emerged over its partnership with OpenAI following the rise of Chinese AI startup DeepSeek.
Microsoft has also faced pressure due to its aggressive AI spending, with capital expenditures expected to reach $80 billion this fiscal year.
Some analysts see the pullback as an opportunity, with shares now trading below 27 times forward earnings, the lowest in nearly two years.
However, Wolfe’s technical analysis suggests near-term risks remain elevated unless the stock can stabilize above key support levels.