Microsoft (MSFT) stock has lost almost 23% year to date, at the time of writing, Tuesday afternoon, March 24, according to Yahoo Finance. Meanwhile, the SPDR S&P 500 index (SPY) is down about 3.75% in the same period.
The rest of the Magnificent 7 stocks are also down in the same period:
- Alphabet (GOOGL) is down more than 5%.
- Amazon (AMZN) is down almost 10%.
- Apple (AAPL) is down more than 6%.
- Nvidia (NVDA) is down almost 6%.
- Tesla (TSLA) is down almost 15%.
- Meta (META) is down more than 9%.
Microsoft stock crashed following its Q2 fiscal year 2026 earnings report on Jan. 28. It closed at $481.63, and the following day it closed at $433.55, losing about 10% in a single day.
The company’s huge capital expenditures and reliance on OpenAI contributed to the crash.
“Approximately 45% of our commercial [remaining performance obligations] balance is from OpenAI,” CFO Amy Hood said during the earnings call.
That means 45% of the $625 billion backlog, according to Form 10-Q, is dependent on OpenAI. Many investors believe that it is a big risk. I did an in-depth analysis of why investing in OpenAI might be a mistake: “AMZN, MSFT, NVDA, SFTBY setting $100 billion on fire.”
Since the article was posted, we have learned about the outcome. OpenAI touted a successful $110 billion funding round, but Microsoft didn’t participate.
Investors unsure whether the backlog is real, whether Microsoft’s partnership with OpenAI is beneficial for the company, and whether the AI cycle is a bubble, are in luck. Bank of America analyst Tal Liani and his team reinstated their coverage of Microsoft stock and provided their opinion on these important questions.
Bank of America reinstates Microsoft stock coverage with a buy rating
Liani answered the most important question: Is Microsoft’s AI backlog real, and when does it turn into revenue?
“Demand is real and durable; the bottleneck is supply, not appetite,” he wrote.
Related: Goldman Sachs resets Microsoft stock forecast
Liani said that as Fairwater data center and other AI infrastructure build-outs materialize, he expects the conversion of remaining performance obligations to accelerate and for Azure to maintain leadership. But near‑term free cash flow (FCF) margins will stay under pressure due to elevated capex.
Regarding the question of whether Microsoft’s OpenAI partnership brings long‑term strategic value, the team said that concentration risk exists but is manageable. Analysts said that they believe the AI cycle is a long‑duration platform shift, not a bubble. According to them, this is an investment cycle with front‑loaded capital expenditures and back‑ended monetization.
They noted that Microsoft’s positioning is strengthened by Copilot and Microsoft AI, which pull AI workloads into Microsoft 365, GitHub, Azure, and Security rather than displacing them.
Analysts believe that as enterprises adopt AI‑driven automation, these tools will empower Microsoft’s core software layer, increasing long‑term returns even though near‑term FCF remains pressured.
In a research note shared with me, Liani set Microsoft’s stock rating as buy, and the price target to $500, based on a 24 multiple of his estimate for the price-to-earnings ratio for 2027. This is higher than the peer group, which is in the range of 18x to 22x. He believes that sustained revenue growth and margin profile warrant this high multiple.
Image source: Shutterstock
Analysts noted downside risks for Microsoft:
- Near-term gross margin pressure
- AI applications and model providers could innovate at a faster rate than
Microsoft - Highly cyclical nature of enterprise application spending
While analysts are optimistic about Microsoft’s future in AI, some Windows users are not.
Microsoft responds to user backlash
I wrote last year about the backlash Microsoft President of Windows and Devices Pavan Davuluri faced after promoting Windows’ evolution into an agentic OS.
Since then, things have actually gotten worse.
More AI Stocks:
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- Morgan Stanley drops eye-popping Broadcom price target
Microsoft CEO Satya Nadella wrote a blog post, “Looking Ahead to 2026,” in December, recommending that people “get beyond the arguments of slop vs. sophistication.”
After Windows Central’s report about the blog post, the term “Microslop” began trending.
Microsoft tried to ban the word on its Copilot Discord server and ended up having to lock down the whole thing, as reported by Futurism.
In what looks like an attempt to cool things down, Davuluri has published a blog post titled “Our commitment to Windows quality.”
“You will see us be more intentional about how and where Copilot integrates across Windows, focusing on experiences that are genuinely useful and well‑crafted,” he wrote. “As part of this, we are reducing unnecessary Copilot entry points, starting with apps like Snipping Tool, Photos, Widgets, and Notepad.”
Some of the improvements to the taskbar, Windows updates, and Explorer will be very welcome when delivered. However, regarding the reduced Copilot push, I don’t have high expectations.
According to The Register, only 3.3% of Microsoft 365 and Office 365 users who touch Copilot Chat actually pay for it.
The company seems to be compensating for the low number of paying users by putting Copilot into everything, thereby increasing the total number of users and, hopefully, getting more paying ones.
Related: History of Microsoft: Company timeline & facts
