After moving to within a few dollars of its all-time high on June 3, Microsoft Corporation (NASDAQ: MSFT) stock fell back a little. It could be a sign of a larger pullback to come. Summer is a time when market volume tends to quiet down. That makes it likely that the stock could pull back, or simply consolidate, before the company reports earnings in late July.
Microsoft wasn’t immune to the sell-off that affected all technology stocks in early 2025. However, investors have seen that many of the best-in-class companies have bounced back. In fact, MSFT stock is up 6% in the 30 days ending June 3, which is slightly outpacing the S&P 500.
Options traders continue to remain bullish rather than bearish before Microsoft’s late July earnings report. MSFT stock is more insulated from tariff concerns than some other technology stocks, but it will still be the target of nervous investors who may look for areas to take profits on bearish headlines.
That said, Microsoft remains a solid Buy in many portfolios as it's one of the undisputed leaders in AI and is taking a leadership position in an area that’s expected to grow massively by 2030.
An Undisputed Leader in AI
In the last several years, many investors have been looking for diamonds in the rough in the AI trade. However, Microsoft has been a gem hiding in plain sight. In the past three years, MSFT stock has delivered a total return of 72.5%. That includes the company’s dividend, which has increased an average of 10.2% per year.
The company’s Azure cloud business has leaned heavily into AI. As the last quarter showed, it continues to show strong growth. That growth has come at some expense to the company’s gross margin, but supporting the continued buildout of AI data centers was necessary.
Microsoft isn’t slowing down on that spending, but it has realized some internal productivity savings from AI. Plus, it’s making a shift in AI spending to the hardware side, which will align with future revenue growth.
One More Reason Microsoft Is Likely to Deliver Magnificent Returns
The quantum computing era may still be in the early stages. But there’s disagreement about how early we are. Earlier this year, NVIDIA Corp. (NASDAQ: NVDA) chief executive officer (CEO) Jensen Huang dragged down quantum stocks when he commented that we were years and maybe decades away from viability.
But Microsoft co-founder Bill Gates sees things differently. Gates believes that quantum computing could be a significant disruptor in industries ranging from materials to medicine in three to five years.
If it does, Microsoft will be one of the names to watch. In February 2025, the company unveiled its Majorana 1 chip. The name Majorana is derived from the Majorana particle, which is a concept in particle physics. It’s the world’s first top conductor based on a breakthrough material, which can "observe and control Majorana particles to produce more reliable and scalable qubits, which are the building blocks for quantum computers.”
Microsoft Is Slightly Overvalued, But Still a Solid Buy
Microsoft is trading at around 37x earnings. That’s about 3.5% ahead of its trailing twelve-month (TTM) average. It's even higher when compared to its three and five-year averages. That may not be an obstacle for long-term investors, but it does lend further support to the idea that MSFT stock is ripe for a pullback.
Momentum traders should also note that short interest in Microsoft is up about 13% over the last month. While the overall short interest in the stock is very low, this could create a headwind for the stock to move to a new all-time high (ATH) in the next few months.
On the other hand, analysts continue to maintain a Moderate Buy rating. Microsoft's analyst ratings on MarketBeat have a consensus price target of $513.13, which is approximately 11% above its current price. Specific analysts, such as The Goldman Sachs Group Inc. (NYSE: GS), Citigroup Inc. (NYSE: C) and Royal Bank of Canada (NYSE: RY), have increased their price targets to $550, $540, and $525, respectively.