As Bulls and Bears Battle Over AI, $350 Is the Key Number to Watch for Microsoft Stock

Microsoft (MSFT) stock is experiencing a period of turbulence. Having descended from all-time highs above $550, the stock is trading in the area of $370, forcing investors to ask themselves the question: Did the fairy tale about artificial intelligence end, or is the market simply giving us a rare chance to buy an excellent asset at a discount? 

If you open any analytical feed, it becomes obvious: Wall Street is split into two irreconcilable camps. Here’s what the bulls and bears are arguing right now. 

Market Sentiment: The View of the Bulls

Optimists are confident that the current selloff is a gift, the dream of a value investor. Their logic builds itself on several pillars. Firstly, we see a historically low valuation. Multiples returned to pre-pandemic values, with the forward price-earnings ratio lowered to the mark of 22.4x. For a mega-cap tech company with the highest margins and a dominating position in the software market this looks like a clear undervaluation. 

Secondly, bulls argue that Microsoft’s massive spend on AI is a strategic investment, not “burning” money. In their opinion, Microsoft’s tight integration with OpenAI and the deployment of new agentic AI is laying the foundation for a future monopoly on the market of corporate software.  

And thirdly, Microsoft has a fortress balance sheet. In conditions of macroeconomic uncertainty, Microsoft possesses a massive liquidity cushion and stably generates cash, which allows the company to aggressively invest without damage for financial stability.

Market Sentiment: The View of the Bears

Skeptics, on the contrary, urge investors to take profits or to remain on the sidelines, pointing at serious systemic risks. The main fear of the bears is the problem of payback (spending vs. revenue gap). 

Capital expenditures on AI infrastructure are growing exponentially, but future incomes from these investments remain under question. Investors want to see real revenue from AI right now, and not promises in presentations. 

Plus, macroeconomic headwinds and competition are applying pressure. Bears are pointing to the general slowdown of the growth rates of the cloud segment (Azure) and the harsh competitive struggle which will press on margins. 

Finally, bears note a loss of focus. Some analysts are beginning to criticize the leadership for inconsistency. The company is in an “impossible situation” where it cannot stop spending on AI expenses, but continuing at the same pace is also dangerous for the stock price. 

The Main Mistake of Microsoft and the Psychology of the Crowd 

Both camps bring reasonable arguments, but, in my view, miss the most important point — the mechanics of market psychology. 

To understand the reason for the current fall in MSFT stock, investors need to remember 2023 and 2024. Microsoft was the first of the tech giants who truly rode the wave of artificial intelligence. Thanks to the partnership with OpenAI (ChatGPT), the company received a colossal advantage. The market believed that Microsoft was an absolute, unreachable leader of the new technological epoch. This faith birthed a huge premium – a massive volume of speculative capital gushed into the shares, having hiked the stock price into the stratosphere.

At the same time, by 2025, reality changed. The main competitor, Google (GOOG) (GOOGL), mobilized all its resources, invested into AI, and caught up with Microsoft. The technological lag was eliminated. Today it is already difficult to say whose technologies are objectively better. Exactly here hides the root of the problem: Microsoft lost the leadership position. More truly, it ceased to be the sole leader. As soon as the market realized that a monopoly is not guaranteed, investors began exiting Microsoft. That fall, which we observe right now, is a classic effect of the unwinding of overbought conditions. The price of the share simply washes out the excessive speculative premium.

Numbers Against Panic

Markets often err in their extremes. At first they drove MSFT inadequately high on the emotions from ChatGPT, and now excessively punish the company for the appearance of competitors. If you throw away the speculative noise and look at the hard financial metrics, then the picture will be such. 

As we see from the quarterly reports, revenue continues to confidently grow: from $69.6 billion in December 2024 to $81.2 billion in December 2025. And here we have an explosive growth of net profit: Net income reached $38.4 billion, having demonstrated a phenomenal growth by 38.6% year over year. Yes, a significant part of this giant profit right away is reinvested into servers and technologies (in essence, remaining “paper”). Yes, there is a ceiling for AI revenue, and growth rates probably will slow down. But a fact remains a fact: the business is running like clockwork, generating tens of billions of dollars.

Technical Picture: Strong Support at the $350 Level 

Looking at the long-term chart, one can notice an important detail, which ideally complements the fundamental positive. The emotional wave of selloffs approaches to the most powerful horizontal level of support in the area of $350. 

This level has serious historical weight. At the end of 2021, this mark acted as a harsh resistance (the historical peak of that cycle), and then turned into a reliable support, having held the stock price on the bottom of subsequent corrections. 

In current conditions, accounting for the continuing growth of the profit of the company and the already unwound overbought conditions, this horizontal boundary must work as a very solid floor. This level is likely to be the turnaround point for MSFT stock. Fundamental undervaluation here coincides with a strong technical base, which by itself appears a powerful signal for the market.

Outcome: Time for Pragmatism

Does this mean that the shares of Microsoft tomorrow will fly to the moon? No. With a capitalization of $2.77 trillion and harsh competition from Google, the phase of explosive growth most likely is already behind it. One should not build illusions and wait for quick multi-baggers. 

However, to sell these shares right now is a huge mistake. The stock is already fairly valued. The market obviously overdid it with the correction, having blown off not only the speculative premium, but also a part of the fundamental value. 

In my view, for the long-term investor, current levels are an excellent opportunity to add shares. Microsoft remains one of the top companies of our time.