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With a YTD gain of just above 11%, Microsoft (MSFT) stock is not only underperforming the S&P 500 Index ($SPX), but is also the worst-performing “Magnificent 7” stock. That dubious title rested with Tesla (TSLA) for most of this year, but the Elon Musk-run company's shares have looked to be operating in a different universe since Donald Trump’s election.
Musk was among the key architects of Trump’s victory, and the president-elect named him, alongside biotech founder Vivek Ramaswamy, to head the newly formed Department of Government Efficiency (DOGE), a commission tasked with advising the president on policies to "slash excess regulations, cut wasteful expenditures, and restructure Federal Agencies."
To be clear, the reason Tesla stock has skyrocketed following Trump’s election is not because markets expect the company’s cars to fly off the shelf under his presidency, but because of expectations of more favorable regulations around autonomous cars, robotaxis, and artificial intelligence (AI).
Musk Favors AI Regulations
However, some of the market's other favorite AI plays, like Meta Platforms (META) and Microsoft, have looked weak - and not without reason. Meta CEO Mark Zuckerberg shares an acrimonious relationship with Musk, and Trump is no fan of the social media giant, either. Trump has termed Facebook “an enemy of the people,” and said that it was as bad as TikTok – a platform that he tried to ban in his first tenure, but has now pledged to “save” from a ban signed into law by Biden administration that's set to take effect in January.
As for Microsoft, the picture is a bit more nuanced. Trump hasn’t said much about the company, and his tariff talk does not mean much for the company’s business - unlike Apple (AAPL), which is at risk from the proposed China tariffs.
Trump also supports AI development, which - coupled with his stance on fewer regulations - should be music to Microsoft’s ears. The Satya Nadella-led company has poured billions into its AI endeavors, and has separately invested over $13 billion in ChatGPT’s parent company, OpenAI.
However, things are not all that simple, and while Musk has been tasked with looking for ways to cut excess regulations, the world’s richest person is among the biggest proponents of regulating AI. Musk was also a signatory to the 2023 letter that called for a halt to the development of advanced AI.
Musk’s Tussle with OpenAI Could Be Negative for Microsoft
Notably, Musk – who was a co-founder of OpenAI – has disassociated himself from the company to launch his own AI startup. Musk has lashed out at OpenAI several times, and in a tweet, he said that it has become “a closed source, maximum-profit company effectively controlled by Microsoft,” something he never intended.
Internal emails show that Musk did not want OpenAI to become “Microsoft’s marketing bitch.” The billionaire has also sued OpenAI, accusing it of anticompetitive policies and alleging that it stops its investors from investing in rival AI companies. Recently, Musk also added Microsoft to its lawsuit, further increasing his feud with the company. In the past, Musk has lashed out at Microsoft’s co-founder Bill Gates for shorting Tesla stock.
OpenAI is Working on Artificial General Intelligence
There have been concerns over “safe” AI development at OpenAI, and the company has disbanded some of its safety teams. Notably, Jan Leike, who co-headed Superalignment at OpenAI – a now disbanded team that focused on safety – quit the company. In a series of tweets, he talked about “disagreements” with OpenAI leadership over the company’s “core values.”
“I believe much more of our bandwidth should be spent getting ready for the next generations of models, on security, monitoring, preparedness, safety, adversarial robustness, (super)alignment, confidentiality, societal impact, and related topics,” he said in a tweet.
OpenAI cofounder Ilya Sutskever, who also co-headed the company’s Superalignment team, quit over apparent safety concerns to start Safe Superintelligence (SSI) – a safety-focused AI company. OpenAI has seen an exodus of top executives as it mulls transforming into a for-profit company.
To be sure, we still don’t know whether Trump will follow Musk’s advice on AI regulations, as some of his other supporters – Andreessen Horowitz co-founder Marc Andreessen, for instance – might favor fewer regulations to support AI development. However, OpenAI would prefer fewer regulations, especially as it works on developing artificial general intelligence.
Microsoft Stock Forecast
Wall Street analysts are bullish on Microsoft stock, and of the 40 analysts in coverage, 34 rate it as a “Strong Buy” and 3 as a “Moderate Buy.” The remaining 3 analysts consider MSFT a “Hold” or some equivalent, and its mean target price of $504.45 is almost 21% higher than yesterday’s closing prices.
While Microsoft’s valuation multiples have come off their highs, the stock does not look mouthwatering at the current NTM PE multiple of 31.6x. I find the stock's risk-return quite balanced at these levels, but the upside looks limited in the near term given the uncertainty over AI monetization and fears of any adverse AI regulations under a Trump presidency.
