Artificial intelligence (AI) titan Microsoft (MSFT) has taken a rare and painful hit.
After years of near-constant leadership, Microsoft is down roughly 12% in a single month, sliding from highs above $555 to Friday’s close near $401. That kind of drawdown in a mega-cap name immediately raises the question investors are now asking:
Is this finally a buying opportunity — or is the market signaling deeper weakness?
In this video clip from Friday’s Market on Close, Senior Market Strategist John Rowland, CMT, explains the move through one critical lens: tradable vs. investable.
Why Microsoft Sold Off Despite Beating Earnings
On the surface, Microsoft’s latest earnings were strong.
The company delivered a clear double beat, reporting earnings per share above expectations. Normally, that’s enough to stabilize a stock — but this time, the market reacted very differently.
The issue wasn’t revenue. It was spending.
Microsoft disclosed $37.5 billion in quarterly capital expenditures, driven by aggressive AI infrastructure build-outs. While strategically sound long-term, the scale of that spending raised concerns about near-term margin pressure, particularly within Azure.
Those concerns were reinforced when Stifel downgraded Microsoft to “Hold,” citing:
- Azure supply constraints
- Intensifying competition
- Rising capital intensity tied to AI
The resulting selloff in the stock wasn’t a judgment on Microsoft’s business, but it was an efficient repricing of risk.
The Technical Damage is Real
From a chart perspective, the correction has been decisive – and overdone, leaving MSFT positioned for a snapback. In fact, the stock is up 5% so far this week.
While the shares have bounced sharply from their deeply oversold status and snapped back inside their lower Bollinger Band since the time of filming, Microsoft is still:
- Trading below its 200-day moving average
- Sitting inside a long-standing earnings gap from early 2025
John is very clear on this point: buying a stock below its 200-day moving average while shorter-term averages are still falling is not a textbook investment setup.
That doesn’t eliminate opportunity, but it does change the timeframe and the strategy.
Tradable vs. Investable: The Key Distinction
This is where the nuance matters.
From a tradable perspective:
Large earnings gaps like the one Microsoft just fell into often act as structural support, not weakness. These gaps represent areas where buyers previously overwhelmed sellers – and when price revisits them after a sharp decline, it’s common to see demand re-emerge.
Combined with Microsoft’s break outside the lower Bollinger Band, this created a statistically favorable environment for a short-term mean-reversion trade – like we’ve already seen play out early this week.
In other words, a bounce was not just possible, according to John – it was reasonable, because the gap itself can function as a price floor.
But from an investable perspective:
- The longer-term trend is still down.
- Momentum has not shifted.
- No durable base has formed yet.
As John emphasizes, any bounce in MSFT this week remains a counter-trend setup, not confirmed accumulation. The risk isn’t that Microsoft is broken; it’s that timing matters.
Six months from now, this gap zone may look like an obvious entry. Right now, the chart says patience still carries value.
Why the Market was Unhappy with MSFT
Microsoft isn’t going away. That part isn’t in question.
What the market is struggling with is the AI CapEx tradeoff:
- Massive spending today
- Deferred payoff tomorrow
- Temporary margin pressure
- Greater execution risk
That’s why valuation has compressed. Microsoft’s forward multiple has fallen well below its historical average — not because growth disappeared, but because certainty did.
The Bottom Line
This Microsoft selloff is less about collapsing fundamentals and more about expectations resetting.
- For traders, John’s technical analysis highlighted the potential for a bounce worth monitoring — with strict risk management — and we’ve seen that play out already this week.
- For investors, the signal to wait remains intact until trend conditions improve.
Watch the Market on Close clip to see the exact gap level and technical zones John highlighted for MSFT:
- Stream the full episode with John’s software stock insights
- Turn on notifications to catch the next Market on Close live episode
On the date of publication, Barchart Insights did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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