Microsoft Avoids Historic Losing Streak: What's Ahead for ETFs?

With just 10 minutes remaining before market close, Microsoft’s stock was about to end last week in the red. If this had happened, it would have marked its first eight-week losing streak since 2008. However, a late rally pushed the stock up 0.7% for the week. MSFT stock has added 2.5% over the past five days (as of March 25, 2025). Despite this rebound, Microsoft stock is down 7% for the year (as of March 21, 2025).

A Historical Comparison to 2008

The last time that Microsoft experienced a prolonged slump of this magnitude was between January and February 2008, during the height of the financial crisis. At that time, the company’s stock declined for nine successive weeks.

AI and Cloud Investments Amid Market Concerns

Microsoft’s struggles in 2025 are particularly notable given its pivotal role in the artificial intelligence boom. The company holds a substantial stake in OpenAI, continues to invest heavily in its Azure cloud infrastructure, and integrates generative AI across its product suite.

Despite these advancements, Microsoft and other mega-cap tech firms have faced a recent downturn mainly due to cheaper AI innovations by Chinese tech companies like DeepSeek and Alibaba. Also, investors worry that President Donald Trump’s tariffs and extensive cost-cutting measures could trigger a recession.

Market Cap Decline and Competitive Pressures

Since reaching a closing high of $467.56 in July 2024, Microsoft’s stock has fallen approximately 16%, taking its market capitalization down to about $2.9 trillion. The company’s underwhelming revenue guidance issued on Jan. 30 also led to price declines in its stock.

Competition in the cloud and AI sectors continues to intensify. Major rivals like Amazon and Google, along with rising startups, are increasing their market presence. Earlier this week, Google announced plans to acquire cloud security startup Wiz for $32 billion, highlighting the increasing competition in the cloud computing space (read: ETFs Set to Gain From Alphabet's Potential Wiz Deal).

What Lies Ahead?

Microsoft stock has a Zacks Rank #3 (Hold).Microsoft currently has an average brokerage recommendation (ABR) of 1.18 on a scale of 1 to 5 (Strong Buy to Strong Sell), calculated on the basis of actual recommendations (Buy, Hold, Sell etc.) made by 44 brokerage firms. The current ABR compares to an ABR of 1.23 a month ago based on 43 recommendations.

Of the 44 recommendations that derive the current ABR, 38 are Strong Buy and four are Buy. Strong Buy and Buy respectively account for 86.36% and 9.09% of all recommendations. A month ago, Strong Buy made up 83.72%, while Buy represented 9.3%.

Based on short-term price targets offered by 40 analysts, the average price target for Microsoft comes to $510.35. The forecasts range from a low of $425.00 to a high of $600.00. The average price target represents an increase of 29.15% from the last closing price of $395.16 (as of March 25, 2025).

Microsoft's Valuation

MSFT stock looks expensive compared to the broader Computer – Software industry.      

• Microsoft has a price-to-book (P/B) ratio of 9.61 vs. a figure of 5.40 for the software industry

• MSFT price-to-cash flow (P/CF) ratio is 26.34 compared to 24.50 for the industry

• It has a price-to-earnings (P/E) ratio of 31.50 vs. the industry’s 16.74

Microsoft’s Revenue Growth Outpaces S&P 500

Microsoft has consistently delivered strong revenue growth, outpacing the S&P 500.

Three-Year Average Revenue Growth: 13.5% vs. 9.8% for the S&P 500 (per Forbes)

Annual Revenue Growth: 15.0% (from $228 billion to $262 billion) vs. 5.6% for the S&P 500

Quarterly Revenue Growth: 12.3% (from $62 billion to $70 billion) vs. 7.2% for the S&P 500

Microsoft’s Financial Stability & High Profitability

Microsoft maintains a strong balance sheet with conservative debt levels. ItsDebt-to-Equity Ratio is 0.13X versus the industry D/E ratio of 18.36X. Net Profit Margin of MSFT is 35.43% versus 12.83% of the underlying industry.

Microsoft-Heavy ETFs in Focus

Microsoft stock has great exposure to various exchange-traded funds (ETFs). These ETFs can be tapped if you are optimistic about the stock.

iShares U.S. Technology ETF IYW – Microsoft has 14.50% exposure

Fidelity MSCI Information Technology Index ETF FTEC – Microsoft has 13.64% exposure

Vanguard Information Technology ETF VGT – Microsoft has 13.19% exposure

American Century Large Cap Growth ETF ACGR – Microsoft has 13.11% exposure

iShares Top 20 U.S. Stocks ETF TOPT – Microsoft has 13.02% exposure

Technology Select Sector SPDR Fund XLK – Microsoft has 12.74% exposure

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This article originally published on Zacks Investment Research (zacks.com).

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