Microsoft started the new year with a small gain year to date, then lost it in recent weeks. But on Friday, the stock rallied for the second week in a row and notched a six-week closing high. So, is Microsoft stock, which entered 2025 with a market cap towering over $3 trillion, a buy in January?
Early Thursday, shares fell sharply, trading near 419 in premarket trading, following a nice earnings beat and disappointing revenue outlook for the current fiscal third quarter ending in March. After the open, Microsoft stock slumped more than 4% and dropped to as low as 414.74 before rebounding mildly. Volume was already jumping 330% above normal levels.
This story will assess fundamental, technical and institutional sponsorship criteria on the veteran tech giant and long-term leader of the stock market. Microsoft reports results for the December-ended fiscal second quarter on Wednesday after the close.
Wall Street forecasted earnings of $3.11 a share, up 6% vs. year-ago levels, on an 11% rise in revenue to $68.9 billion. The Redmond, Wash., tech titan reported $3.23 in earnings, up 10%, on a 12% revenue gain to $69.6 billion.
In the prior four quarters, earnings at Microsoft jumped 26%, 20%, 10% and 10% vs. year-ago levels on top-line increases of 18%, 17%, 15% and 16%.
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Microsoft Stock Today
Following the three-day MLK national holiday, the leader in cloud computing, enterprise software, gaming consoles and computing hardware underperformed a broad and bullish stock market advance, edging 0.1% lower on Jan. 21 to 428.50 in above-average turnover. But two days later, MSFT showed the best action of the year so far. Shares gapped up and barreled 4% higher to 446.20, marking a one-month closing high.
The jump followed news of a major artificial intelligence infrastructure project, Stargate, announced by President Donald Trump late Tuesday. During the announcement at the White House, the heads of privately held OpenAI, Oracle and Japan's Softbank stood to the side of Trump.
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Also, volume accelerated vs. the prior session, a sign that large fund managers deployed capital in serious fashion. Turnover jumped a healthy 32% above its average level over the past 50 sessions.
Meanwhile, ahead of the earnings news, the Accumulation/Distribution Rating for Microsoft stock proved healthy at B+ on a scale of A (indicating heavy institutional buying) to E (big selling by professional fund managers).
On Thursday and Friday of this past week, Microsoft traded in relatively quiet fashion, and that's good. Why? The stock kept the lion's share of Wednesday's strong gain. But on Monday, amid a severe drop in artificial intelligence-related companies, Microsoft stock did not avoid the tech drubbing. Shares slid as much as 4.6% but trimmed that loss in heavy volume.
Amid a solid 2% rebound by the Nasdaq on Tuesday, Microsoft shares outperformed with a 2.9% lift in mildly above-average trade.
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Market In January: Chopfest So Far
This story noted that amid a punishing session for growth stocks on Jan. 10, the enterprise software, cloud computing and gaming hardware giant did not defy the sell-off. Such action was normal amid a growing distribution day count, as noted in IBD's Big Picture.
Microsoft stock had been struggling lately to keep abreast of key technical levels on the chart of Microsoft stock. Sellers had recently shoved shares beneath both the 50-day moving average and the long-term 200-day line, which tracks roughly 10 months' worth of price action.
A healthy stock normally shows not only a steady rise, but also a positive slope in both these two moving averages. A rising moving average line means the stock price is trending up. For weeks, Microsoft's 50- and 200-day lines had been flatlining.
But today, the 50-day moving average is beginning to etch a positive slope. And now, the 200-day line has moved slightly higher since the end of last year.
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Microsoft Stock Today
Trading at 415, Microsoft now trades more than 11% off its 52-week peak of 468.35.
In 2024, Microsoft's gain of 12% was decent, yet dull when compared with the S&P 500's 23.3% advance.
Therefore, from this perspective, Microsoft stock is not a market leader in the short term.
This is also backed up by the fact that Microsoft held a lukewarm Relative Strength Rating of 65 on a scale of 1 to 99.
In general, prefer those stocks that hold an RS score of 80 or higher. What does this mean if you do so? The advantage for individual investors: You're focusing on companies that are beating at least 80% of the entire stock market over the past 12 months. Such relative strength is of paramount importance when selecting the best growth stocks today.
According to IBD Stock Checkup, Microsoft stock shows even more improvement with a Composite Rating of 87 recently, also on a scale of 1 to 99. That's actually quite respectable for a long-term leader. In general, the very best stock market winners begin their massive gains while the Composite Rating is already at a high level, say 90 or 95, or even higher.
Shares are now outperforming the major averages with a 5.3% gain since Jan. 1.
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Mutual Fund Ownership Grows
In terms of institutional ownership, surely it's a widely held name. Yet, MarketSurge data highlights that just 41% of Microsoft stock is owned by mutual funds. Banks own just 2% of the 7.435 billion shares outstanding.
Mutual funds are among the most influential classes of investors who determine the success or failure of individual growth stocks. Why?
With their massive buying power, the best and largest mutual funds often need weeks, even months, to completely fill out a position in a single stock. Their continuous buying ultimately creates positive trading psychology. On a chart, big fund buying helps a potential stock market leader bottom out after a significant correction, rebound back near 52-week or all-time highs, then break out to new highs.
Such activity makes all investors long in the stock happy.
Mutual Fund Ownership Keeps Rising
The number of mutual funds owning a piece of Microsoft stock ramped up from 9,643 funds in the first quarter of 2023 to as high as 10,430 at the end of 2024.
Nonetheless, some top mutual funds have trimmed their holdings in Microsoft recently.
Among members of the IBD Mutual Fund Index, MFS Growth Fund (MFEGX), JPMorgan Large Cap Growth (OLGAX) and Fidelity Contrafund (FCNTX) all reduced their positions in the fourth quarter. Together, these three top performers owned a total 54 million shares.
JPMorgan Large Cap Growth held 20.68 million shares at the end of Q4 last year, down from 22.21 million in Q3.
Earnings Picture
Bullish investors in Microsoft stock are hoping that the company's investments in AI technology will help generate continued growth in the bottom line.
Following Wednesday's disappointing revenue outlook, analysts surveyed by FactSet see earnings rising 11% in the current fiscal year ending in June to $13.13 a share, then accelerating 15% in fiscal 2026 to $15.10.
Strong sales are the mother of bountiful earnings. What's the outlook for Mr. Softy?
Revenue is expected to climb 12% in the March fiscal third quarter to $68.9 billion, then increase 13% vs. year-ago levels in each of the next two quarters.
So, the fundamental picture remains rosy for this megacap tech. Smaller companies, based on IBD research, often display growth of high double to triple digits in both earnings and sales before they break out and go on big price advances.
Surely, compared to its high-growth days in the late 1980s and 1990s and during parts of the decades that followed, the Redmond, Wash., firm's growth has slowed. Yet the five-year Earnings Stability Factor of 6 on a scale of zero (ultra steady) to 99 (hyper-volatile) bespeaks the company's earnings power.
So while the fundamental and fund ownership metrics look positive, Microsoft has yet to finish a good base from which it can break out to new highs and provide an excellent new buy point.
Final Analysis
Therefore, based on IBD rules and investing methodology, until the stock breaches a recent high of 456.16, Microsoft stock has not produced a standard buy point in January.
So, for now, Microsoft stock is not a buy yet, but the 6% gain year to date is encouraging. Plus, a move past 450-455 could trigger an aggressive buy point based on a well-established trend line that starts with the 468.35 peak seven months ago.
For long-term investors, MSFT is also not a sell. Why? It's held within a 12-month trading range of 385 to 468. This suggests institutions are not rushing for the exits, either.
On a daily chart, keep a sharp eye on how Microsoft stock behaves around the 200-day moving average.
If one were to draw a trendline from the 468.35 high on July 5, one could spot a lower buy point near 450-452.
Yet, after Thursday's sharp sell-off, the stock is distancing further away from potentially triggering this alternate buy point.
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