Is Microsoft a buy or perhaps even a sell in March? This story on the legendary growth company examines key measures such as profits and sales, relative strength in the market, and the quantity and quality of fund ownership in Microsoft stock.
Last week, Microsoft stock marked a seventh down week in a row. Yet the 1.2% loss last week was much worse earlier in the week. The fact that shares pulled off the week's low of 376.91 in heavy, accelerating volume hinted that a constructive shakeout was occurring.
Microsoft Stock Today
Now, Microsoft is giving back hard-fought gains. Shares on Tuesday morning dropped nearly 1.7%, in step with a 1.8% loss by the Nasdaq 100.
At last week's low of 376.91, MSFT fell more than 10% since the start of 2025. It also fell 19.5% below its all-time high.
TechCrunch, a popular technology news site, reported on Monday that OpenAI will start testing ChatGPT connectors for both Google Drive and Slack. Microsoft has invested billions in OpenAI, which has been updating its artificial intelligence platform since debuting the innovative product in late 2022.
The last time Microsoft stock plunged 20% below a 52-week or all-time high came during the general bear market in U.S. stocks in 2022. From a then peak of 349.67, the tech heavyweight dropped 39% to a 2022 low of 213.43.
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Chart Analysis
Notice in the above daily chart how Microsoft stock has clearly undercut its Aug. 5, 2024, low of 385.58. One way to interpret the chart action: a great shakeout of weaker, uncommitted holders. Shares are now mildly above the Aug. 5 low.
As noted in this IBD Big Picture story last week, the stock market has fallen sharply into correction mode. Therefore, active investors should keep the portfolio invested at a very low range of 0% to 20%. Index ETF traders, meanwhile, should move completely into cash.
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Trade In The Near Term? Or Invest Over The Long Haul?
For traders who like to swing-trade, the positive reversal in Microsoft stock on March 4 and 5 briefly spurred a short-term entry.
One could have used the March 4 intraday low of 381 as the stop-loss price level. Using 381 as the price level in which to exit any new buys, the loss risk was as small as 2% to a reasonable 5%. Yet given a sell-off on March 10, traders who bought at recent lows were forced to cut losses short.
Amid the recent rebound, MSFT is trying again to show bottoming action. However, a MarketSurge chart shows that Microsoft is still trading below the 21-day exponential moving average. You'd prefer to see a growth stock rise above its 21-day line before considering a new buy. Purchasing shares below the key near-term technical level is aggressive.
Microsoft Stock Timing: Using Base Analysis
What about long-term investors or even position traders seeking a lower-risk entry in Microsoft stock?
A breakout from a decent base during a bull market still stands as the highest probability of catching a winner such as MSFT at the right time. As one example, in the month of March 2019, the Nasdaq-listed company cleared a five-month cup with handle with a 113.25 timely entry point. At the time, the stock market was in the early stages of a new uptrend. Since then, Microsoft has catapulted as much 313% to an all-time high of 468.35 in the week ended July 5, 2024.
That comes out to an excellent compounded annual growth rate of 30.5% over the five-year, four-month span.
After the breakout on March 12, 2019, if MSFT had fallen 7% below the 113.25 pivot point, it would have required new buyers to sell and cut losses. But over the next six months, the stock never fell below the 113.25 proper entry.
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Earnings And Sales
Let's take a concise look at company fundamentals.
Almost 39 years have passed since Microsoft stock debuted on the Nasdaq in March 1986. Since then, the cloud computing, enterprise software, computer hardware and gaming console giant has grown into the No. 2 spot on the Nasdaq in terms of market value. So, given its massive size as a corporation, it's sensible to expect the company's financial metrics to rise at a more steady and gradual pace.
Over the past eight quarters, the Redmond, Wash.-based firm's earnings per share grew 10%, 21%, 27%, 26%, 20%, 10%, 10% and 10% vs. year-ago levels. Those figures stand nowhere near the high double-digit or triple-digit profit growth rates seen in some young tech companies, including AppLovin, Palantir Technologies and IBD Big Cap 20 member Fortinet. However, the five-year annual EPS growth rate of 18% remains enviable.
In fiscal 2024, Microsoft earned $11.80 a share. That's equivalent to roughly $87.7 billion in net income.
Sales over the same time frame increased 7%, 8%, 13%, 18%, 17%, 15%, 16% and 12% vs. year-ago levels.
Notice that in most of those eight quarters, profits grew at a faster rate than sales. This highlights the company's strong operating performance. High profit margins help the cause. The return on equity in fiscal 2025 is also splendid at 37%. Hence, Microsoft stock earns a top-grade A SMR Rating (Sales + Margins + Return on equity).
Check all of Microsoft's key IBD Ratings at Stock Checkup.
Furthermore, MarketSurge shows MSFT holding a wonderful five-year Earnings Stability Factor of 6 on a scale of 0 to 99. The lower the factor, the more stable a company's profits.
Steady Profit Growth Expected
The fiscal 2025 year ends in June. Wall Street sees earnings rising 12% to $13.16 a share. That estimate was recently revised lower. In fiscal 2026, profit is seen accelerating 14% to $14.96 a share.
The stock's annual dividend yield has edged up to 0.9%, favoring the long-term holder. But that yield trails the S&P 500's yield of 1.3%.
What is the institutional sponsorship picture for Microsoft stock?
In the December-ended quarter, 10,494 mutual funds owned shares. That's slightly up from 10,461 in the same period of 2023. Mutual fund owners peaked in the June 2024 quarter at 10,694. In total, 41% of total shares outstanding are held by funds. vs. 2% by banks.
Fidelity Contrafund (FCNTX) trimmed its hefty stake in Microsoft stock to 19.28 million shares in the fourth quarter of last year vs. 20.63 million in Q3. JPMorgan Large Cap Growth (JLGMX), MFS Growth (MFEGX) and Allspring Growth (SGRAX) also reduced their stakes, but Janus Henderson Forty (JCAPX), Franklin Growth (FKGRX) and other top-rated mutual funds have either kept their holdings unchanged in the past quarter or added shares, according to data in MarketSurge.
The Chart
Finally, here are some important technical factors to consider.
First, Microsoft stock is still trading beneath all of the main moving averages. Through Thursday, MSFT has now dove almost 11% below its 200-day line, which has slipped below 424.
On a daily chart, MSFT is trading 5% below its falling 50-day moving average (currently at 411). This chart tool gives an investor a sense of the recent price trend over the past 2-1/2 months. Is Microsoft stock generally trending higher? Lower? Moving sideways? Just look at the slope of the 50-day line. And right now, the stock's 50-day line is sloping lower, a bearish sign.
Decades of IBD research on the biggest stock market winners find that the true leader is already trading above its 50-day line and leading the moving average higher before staging a big breakout and a grand price run. Today, Microsoft stock's 50-day line has been sinking for nearly four weeks, a no-no.
Keep an eye on the 21-day exponential moving average as well. This moving average has been falling sharply since Microsoft reported fiscal Q2 results on Jan. 29. A strong stock should trade on the north side of the 21-day line and leading the moving average higher. That's not the case with MSFT now. MarketSurge and other chart services allow you to draw a 21-day exponential moving average.
IBD research also finds that in almost all cases, the best winners form a solid base. A base represents the time in which a stock undergoes a limited period of profit-taking, bottoms in price, and eventually surges out of that base and vaults to new highs in active volume.
When a stock breaks out and marks new 52-week or all-time highs, all shareholders are happy. Only short sellers are feeling the heat.
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In Neutral Territory
Therefore, since Microsoft stock is not at all close to marking a new 52-week or all-time high. Shares are also not in a position chart-wise to break out.
Thus, Microsoft is not a buy now.
For long-term holders with hefty gains in the stock, it is also not a sell. Why?
MSFT has certainly not made any price progress since peaking at 468.35 in July last year. Those who bought shares on the way up in 2024 and have seen their gains shrink or vanish could certainly reduce or exit the position to avoid future losses. More broadly, shares could continue to move sideways, wear out holders with a long saucer-style pattern, and eventually set up a new buy point.
Given that the stock has also already fallen below its 50- and 200-day lines and plummeted for weeks, it is still a dangerous time to sell shares short. Why?
At some point, institutional investors might see the pullback as a ripe opportunity to add more shares to their long-term positions. And market makers often try to force short sellers to cover their positions by bidding up the stock after a sharp short-term drop.
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