Microsoft (MSFT) Stock Forecast: Can the AI Rally Continue After a Record $450B Surge?

Quick overview

The arrival of a new trading week has employees at Microsoft (NASDAQ: MSFT) reflecting on one of the largest earnings surprises in the company’s history and the explosion of share price resulting from it. In a single day, Microsoft stock increased by approximately 15%, almost $450 billion in market capitalization, after reporting Azure revenue growth of 43%, Microsoft Cloud revenue of $59.3 billion, and an expectation of even greater growth of Microsoft Cloud in the coming quarter according to a report by Reuters. This increase in market capitalization by Microsoft was larger than the previous record set by Nvidia.

Last week changed the narrative around AI at a corporate level. There has been some concern that large companies, generally referred to as “hyperscalers,” may be over-investing in the AI infrastructure. Microsoft’s earnings report dispelled those concerns by showing accelerated growth in Azure, a record growth in the commercial backlog, and higher guidance. As we begin the first week of August, the focus shifts from earnings to the market—to see if buyers are able to hold the breakout, or if they are booking profit after a record Microsoft stock sale.

Review of Last Week’s Events: Microsoft: The AI Investing Case Closer

With a quarterly report that showed revenue growth of 18% year over year to $90.0 billion and a quarterly report that showed earnings per share growth to $4.81, Microsoft became the headline event for the market.

Azure earned the company a nice surprise after reporting revenue growth of 43% and a large Cloud revenue number of $59.3 billion, after Microsoft Cloud reached a milestone of $100 billion in annual revenue.

Microsoft reported Commercial Remaining Performance Obligations increased to $678 billion. Demand from enterprises has expanded beyond those companies developing the largest AI models. Microsoft 365 Copilot has surpassed 30 million paid seats, which shows further enterprise customer investment in and adoption of generative AI.

The market valued this positively. Within one day, Microsoft stock increased 15% and gained $450 billion in market value, the largest one day market value increase. Nine stock analysts increased their price targets within one day, and the new mean increased to above $560.

What Will the Next Week Hold for Microsoft?

Microsoft has no major upcoming events and earnings have just been reported. Lack of company-specific news means investors will analyze macroeconomic data.

In the upcoming week, the ISM Manufacturing PMI will be the first major macroeconomic data release, followed in short order by JOLTS, Factory Orders, the ADP, ISM Services, and then the weekly Jobless Claims and Non-Farm Payrolls.

The Fed will analyze macroeconomic data, while investors will analyze U.S. data. If labor data is weak but yields remain low, the Fed is likely to relax monetary policy, and this will impact high-growth technologies positively. If labor data is strong, profit-taking from the sharp Microsoft gain will occur and increased yields will negatively impact the market.

The earnings will also impact the other AI-related sectors. Immediate positive impacts to Micron and AMD stocks show that the market prefers companies that invest in AI and deliver results.

Read more: Why Is Microsoft (MSFT) Stock Up Today? Azure Grows 43%, EPS Hits $4.81

Microsoft Targets $490 Following Breakout

Microsoft surpassed a long-term descending trendline and the 50 and 100-day EMAs. The 50 and 100-day EMAs were at $399 and $422 respectively. Microsoft stock closed at $465, just below a resistance level of $465.83, closing the day with a bullish engulfing candle and confirmed institutional buying.

Microsoft’s RSI closed at 74 and showed overbought conditions. Microsoft is likely to consolidate early next week, but the overall trend is bullish while Microsoft is above the breakout zone. A confirmed close above $465.83 would lead to a target of $489.41 and then $513.85.

• Resistance: $465.83, $489.41, $513.85
• Support: $431.97, $422.33, $403.25

Targets and Stop Loss

Buying is suggested on a confirmed close above $466. The target is $489.41 and then $513.85. The stop loss is below $431.97. The medium-term target is bullish as long as Microsoft is above the breakout zone of $432. Likely short consolidation and not reversal will happen in the absence of supports.

FAQs

What caused Microsoft stock to rise recently?

Microsoft stock surged to a reported almost $450 billion in a day breakout with quarterly earnings that beat expectations with Azure winning at 43%, $90 billion in revenue, and a strong cloud outlook.

What will drive Microsoft next week?

Focus is primarily on macros with the Non-Farm Payroll on Friday. It will set the flow for yields which will set the tone for large-caps and Fed policies as well.

What Microsoft price levels should we monitor?

The first of the three levels of resistance is at $465.83, with the others at $489.41 and $513.85. Current support is at $431.97, $422.33 and $403.25.

Arslan Ali Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Ali Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.

His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.

His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.