Software Stocks Plummet Amid AI Disruption Fears
Written by Emily J. Thompson, Senior Investment Analyst
Updated: 3d ago
0mins
Should l Buy MSFT?
Source: Fool
- Software Stock Decline: Software-related stocks have dropped 21% this year due to investor fears of AI disruption, with most losses occurring in the past week, indicating heightened market anxiety over AI tools like Anthropic's Claude Cowork.
- Microsoft Financial Pressure: Despite a 39% growth in its Azure cloud infrastructure business last quarter, Microsoft shares have fallen 25% in three months due to surging capital expenditures, reflecting increasing investor concerns about its AI strategy.
- Shopify Market Dominance: Shopify dominates the e-commerce software sector, and although its stock is down 38% from its peak, its latest quarter saw a 32% revenue increase to $2.8 billion, demonstrating strong market demand and future growth potential.
- Figma Competitive Edge: Figma's stock has plummeted 85% since its IPO, yet its design software remains competitive, and its ongoing AI integration enhances product capabilities, suggesting continued demand in the design sector.
Trade with 70% Backtested Accuracy
Stop guessing "Should I Buy MSFT?" and start using high-conviction signals backed by rigorous historical data.
Sign up today to access powerful investing tools and make smarter, data-driven decisions.
Analyst Views on MSFT
Wall Street analysts forecast MSFT stock price to rise over the next 12 months. According to Wall Street analysts, the average 1-year price target for MSFT is 631.36 USD with a low forecast of 500.00 USD and a high forecast of 678.00 USD. However, analyst price targets are subjective and often lag stock prices, so investors should focus on the objective reasons behind analyst rating changes, which better reflect the company's fundamentals.
34 Analyst Rating
32 Buy
2 Hold
0 Sell
Strong Buy
Current: 393.670
Low
500.00
Averages
631.36
High
678.00
Current: 393.670
Low
500.00
Averages
631.36
High
678.00
About MSFT
Microsoft Corporation is a technology company that develops and supports software, services, devices, and solutions. Its Productivity and Business Processes segment consists of products and services in its portfolio of productivity, communication, and information services, spanning a variety of devices and platforms. It comprises Microsoft 365 Commercial products and cloud services; Microsoft 365 Consumer products and cloud services; LinkedIn, and Dynamics products and cloud services. The Intelligent Cloud segment consists of its public, private, and hybrid server products and cloud services. It comprises server products and cloud services, including Azure, and enterprise and partner services, including Enterprise Support Services. Its More Personal Computing segment primarily comprises Windows and Devices, including Windows OEM licensing; Gaming, including Xbox hardware and Xbox content; Search and news advertising, comprising Bing and Copilot, Microsoft News, and Microsoft Edge.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
Microsoft Faces Challenges and Opportunities in AI Business
- Performance Concerns: Microsoft's fiscal Q2 2026 results revealed strong overall performance; however, modest weaknesses in AI software and cloud services led to a more than 10% drop in stock price in one day, raising investor concerns about future growth.
- Copilot License Sales Growth: As of Q2 2026, Microsoft 365's Copilot licenses reached 15 million, doubling year-over-year but representing only a 3.7% market penetration, indicating limited market uptake that could hinder future revenue growth.
- Azure Revenue Growth Slowdown: Azure's revenue grew 39% year-over-year in Q2, surpassing Wall Street's 37.1% forecast, yet slower than the previous quarter's 40%, suggesting a potential loss of momentum that may affect investor confidence.
- Data Center Capacity Shortage: Microsoft's order backlog surged 110% year-over-year to $625 billion, with 45% from OpenAI, which may limit Azure's expansion and increase investment risks due to reliance on external funding and revenue growth.
See More
Microsoft Reports Strong Earnings Amid Stock Decline
- Strong Earnings but Stock Drop: Microsoft reported strong results for its fiscal 2026 second quarter, yet its stock fell over 10% due to modest weakness in AI software and cloud services, now down 22% from its record high, reflecting market concerns about future growth.
- Slow Copilot License Sales: As of the fiscal 2026 second quarter, only 15 million Copilot licenses for Microsoft 365 were sold, doubling year-over-year but representing a mere 3.7% market penetration, indicating insufficient market uptake that could hinder future revenue growth.
- Azure Growth Deceleration: Azure achieved a 39% year-over-year growth rate in the second quarter, exceeding Wall Street's expectations, yet slower than the previous quarter's 40%, with a staggering 110% year-over-year increase in order backlog to $625 billion due to data center capacity shortages, highlighting potential growth bottlenecks.
- Attractive Stock Valuation: With a current P/E ratio of 26.5, Microsoft is at its lowest valuation in three years, significantly lower than the Nasdaq-100's 32.8, and analysts project earnings to rise to $19.06 per share in fiscal 2027, resulting in a forward P/E of just 22.4, suggesting a buying opportunity for long-term investors.
See More
Japan's LDP Wins Election, Prime Minister Returns
- Election Outcome: Japan's ruling Liberal Democratic Party (LDP) secured a supermajority in the recent elections, allowing Prime Minister Sanae Takaichi to return to power, which indicates strong voter support for her administration.
- Economic Policy Initiatives: Takaichi's agenda includes increasing defense spending and suspending certain food-related taxes, which is expected to stimulate economic growth and enhance consumer confidence, positively impacting Japan's economy.
- Market Reaction: Following the election results, Japanese stocks reached a record high, with the yen strengthening to 156.88 per dollar, reflecting renewed investor confidence in the government's future policies and economic direction.
- International Market Trends: U.S. markets also showed strong performance post-election, with major index futures rising, indicating global investor interest in tech stocks, particularly in the AI sector, further contributing to the overall market recovery.
See More
Big Tech Loses Over $1 Trillion in Valuation
- Big Tech Valuation Loss: According to FactSet data, Big Tech has collectively lost over $1 trillion in valuation over the past week, with Amazon alone shedding more than $300 billion, indicating a significant decline in market confidence that may lead investors to reassess the future growth potential of the tech sector.
- US-India Trade Deal Framework: The U.S. and India released a framework for a trade deal, although India showed resistance to U.S. demands for opening its agricultural market to imports, while Trump removed a 25% tariff on India for purchasing Russian oil, which could impact trade relations and future economic cooperation between the two nations.
- Luckin Coffee's High-End Store Launch: China's Luckin Coffee opened its first high-end store in Shenzhen, marking a shift from its original budget coffee kiosk strategy to directly compete with Starbucks, a strategic move that could attract a more affluent consumer base and enhance brand image and market share.
- Dow Jones Surpasses 50,000: The Dow Jones Industrial Average closed above 50,000 for the first time on Friday, driven by a rebound in tech stocks, a milestone that not only reflects a strong market recovery but may also attract more investors to focus on the long-term growth potential of the U.S. stock market.
See More
Investors Show Caution Towards Tech Stocks Amid High Valuations
- Tech Sector Weakness: As of February 4, 2026, large-cap tech stocks have declined about 3%, making them the worst-performing sector, reflecting investor concerns over high valuations and AI spending without returns, potentially increasing the risk of a market correction.
- Microsoft's Investment Appeal: Microsoft reported a 66% year-over-year increase in capital expenditures in Q2 2026, and despite a slowdown in Azure's growth, its remaining performance obligation surged 110% to $625 billion, making it attractive for long-term investors with a current P/E ratio of 26, below S&P 500 and Nasdaq-100 averages.
- Oracle's Upside Potential: Oracle's stock is viewed by analysts as having higher upside potential, with a median price target of around $272, indicating an 88% upside over the next 12 months; however, concerns over its AI spending persist, despite a 438% year-over-year increase in its contract backlog to $523 billion, indicating strong market demand.
- Market Focus on AI Spending: Investors are wary of Oracle's AI expenditures, especially after its announcement to raise $50 billion for new data centers, and while its client list includes industry giants like Nvidia and Meta, concerns about OpenAI's funding capabilities may impact its stock performance.
See More
Investors Concerned About Large-Cap Tech Valuations
- Large-Cap Tech Underperformance: As of February 4, 2026, large-cap tech stocks have declined approximately 3%, making them the worst-performing sector, reflecting investor concerns over high valuations and excessive AI spending, which may increase the risk of a market correction.
- Microsoft's Investment Appeal: Microsoft reported a 66% year-over-year increase in capital expenditures in Q2 2026, and despite a slowdown in growth for its AI cloud engine Azure, its remaining performance obligation rose 110% to $625 billion, making it attractive for long-term investors with a current P/E ratio of 26, below the S&P 500 and Nasdaq-100 averages.
- Oracle's Potential Upside: Oracle's stock is rated by Wall Street analysts to have an 88% upside potential with a target price of around $272, despite investor concerns over its AI spending; its contract backlog surged 438% year-over-year to $523 billion, indicating strong demand for cloud computing.
- Caution on AI Spending: Investors are cautious about companies with high AI expenditures, particularly Oracle due to its $300 billion contract with OpenAI, which has raised concerns despite its increasing debt, yet it remains attractive from a valuation perspective.
See More
Microsoft Faces Challenges and Opportunities in AI Business
- Performance Concerns: Microsoft's fiscal Q2 2026 results revealed strong overall performance; however, modest weaknesses in AI software and cloud services led to a more than 10% drop in stock price in one day, raising investor concerns about future growth.
- Copilot License Sales Growth: As of Q2 2026, Microsoft 365's Copilot licenses reached 15 million, doubling year-over-year but representing only a 3.7% market penetration, indicating limited market uptake that could hinder future revenue growth.
- Azure Revenue Growth Slowdown: Azure's revenue grew 39% year-over-year in Q2, surpassing Wall Street's 37.1% forecast, yet slower than the previous quarter's 40%, suggesting a potential loss of momentum that may affect investor confidence.
- Data Center Capacity Shortage: Microsoft's order backlog surged 110% year-over-year to $625 billion, with 45% from OpenAI, which may limit Azure's expansion and increase investment risks due to reliance on external funding and revenue growth.
See More
Microsoft Reports Strong Earnings Amid Stock Decline
- Strong Earnings but Stock Drop: Microsoft reported strong results for its fiscal 2026 second quarter, yet its stock fell over 10% due to modest weakness in AI software and cloud services, now down 22% from its record high, reflecting market concerns about future growth.
- Slow Copilot License Sales: As of the fiscal 2026 second quarter, only 15 million Copilot licenses for Microsoft 365 were sold, doubling year-over-year but representing a mere 3.7% market penetration, indicating insufficient market uptake that could hinder future revenue growth.
- Azure Growth Deceleration: Azure achieved a 39% year-over-year growth rate in the second quarter, exceeding Wall Street's expectations, yet slower than the previous quarter's 40%, with a staggering 110% year-over-year increase in order backlog to $625 billion due to data center capacity shortages, highlighting potential growth bottlenecks.
- Attractive Stock Valuation: With a current P/E ratio of 26.5, Microsoft is at its lowest valuation in three years, significantly lower than the Nasdaq-100's 32.8, and analysts project earnings to rise to $19.06 per share in fiscal 2027, resulting in a forward P/E of just 22.4, suggesting a buying opportunity for long-term investors.
See More
Japan's LDP Wins Election, Prime Minister Returns
- Election Outcome: Japan's ruling Liberal Democratic Party (LDP) secured a supermajority in the recent elections, allowing Prime Minister Sanae Takaichi to return to power, which indicates strong voter support for her administration.
- Economic Policy Initiatives: Takaichi's agenda includes increasing defense spending and suspending certain food-related taxes, which is expected to stimulate economic growth and enhance consumer confidence, positively impacting Japan's economy.
- Market Reaction: Following the election results, Japanese stocks reached a record high, with the yen strengthening to 156.88 per dollar, reflecting renewed investor confidence in the government's future policies and economic direction.
- International Market Trends: U.S. markets also showed strong performance post-election, with major index futures rising, indicating global investor interest in tech stocks, particularly in the AI sector, further contributing to the overall market recovery.
See More
Big Tech Loses Over $1 Trillion in Valuation
- Big Tech Valuation Loss: According to FactSet data, Big Tech has collectively lost over $1 trillion in valuation over the past week, with Amazon alone shedding more than $300 billion, indicating a significant decline in market confidence that may lead investors to reassess the future growth potential of the tech sector.
- US-India Trade Deal Framework: The U.S. and India released a framework for a trade deal, although India showed resistance to U.S. demands for opening its agricultural market to imports, while Trump removed a 25% tariff on India for purchasing Russian oil, which could impact trade relations and future economic cooperation between the two nations.
- Luckin Coffee's High-End Store Launch: China's Luckin Coffee opened its first high-end store in Shenzhen, marking a shift from its original budget coffee kiosk strategy to directly compete with Starbucks, a strategic move that could attract a more affluent consumer base and enhance brand image and market share.
- Dow Jones Surpasses 50,000: The Dow Jones Industrial Average closed above 50,000 for the first time on Friday, driven by a rebound in tech stocks, a milestone that not only reflects a strong market recovery but may also attract more investors to focus on the long-term growth potential of the U.S. stock market.
See More
Investors Show Caution Towards Tech Stocks Amid High Valuations
- Tech Sector Weakness: As of February 4, 2026, large-cap tech stocks have declined about 3%, making them the worst-performing sector, reflecting investor concerns over high valuations and AI spending without returns, potentially increasing the risk of a market correction.
- Microsoft's Investment Appeal: Microsoft reported a 66% year-over-year increase in capital expenditures in Q2 2026, and despite a slowdown in Azure's growth, its remaining performance obligation surged 110% to $625 billion, making it attractive for long-term investors with a current P/E ratio of 26, below S&P 500 and Nasdaq-100 averages.
- Oracle's Upside Potential: Oracle's stock is viewed by analysts as having higher upside potential, with a median price target of around $272, indicating an 88% upside over the next 12 months; however, concerns over its AI spending persist, despite a 438% year-over-year increase in its contract backlog to $523 billion, indicating strong market demand.
- Market Focus on AI Spending: Investors are wary of Oracle's AI expenditures, especially after its announcement to raise $50 billion for new data centers, and while its client list includes industry giants like Nvidia and Meta, concerns about OpenAI's funding capabilities may impact its stock performance.
See More
Investors Concerned About Large-Cap Tech Valuations
- Large-Cap Tech Underperformance: As of February 4, 2026, large-cap tech stocks have declined approximately 3%, making them the worst-performing sector, reflecting investor concerns over high valuations and excessive AI spending, which may increase the risk of a market correction.
- Microsoft's Investment Appeal: Microsoft reported a 66% year-over-year increase in capital expenditures in Q2 2026, and despite a slowdown in growth for its AI cloud engine Azure, its remaining performance obligation rose 110% to $625 billion, making it attractive for long-term investors with a current P/E ratio of 26, below the S&P 500 and Nasdaq-100 averages.
- Oracle's Potential Upside: Oracle's stock is rated by Wall Street analysts to have an 88% upside potential with a target price of around $272, despite investor concerns over its AI spending; its contract backlog surged 438% year-over-year to $523 billion, indicating strong demand for cloud computing.
- Caution on AI Spending: Investors are cautious about companies with high AI expenditures, particularly Oracle due to its $300 billion contract with OpenAI, which has raised concerns despite its increasing debt, yet it remains attractive from a valuation perspective.
See More
