Microsoft's stock has fallen 20% over the past year, but even Burry believes it will rise. Why?

Microsoft, one of the world’s largest software companies, has been hit harder than almost anyone else by this year’s“software apocalypse”—in January, its market capitalization plummeted by a record $357 billion in a single day. Over the course of the year, its stock price fell by more than 20%, despite steadily rising revenue and profit figures. At the same time, the overwhelming majority of analysts recommend buying Microsoft stock, and at the end of June, even the famous short-seller Michael Burry unexpectedly decided to bet on an uptrend— he bought call options on Microsoft with a strike price of $700 expiring at the end of 2028, which implies a 78% increase from current levels. Why, despite the decline, is everyone betting on this company?

Currently, out of 64 research firms on Wall Street, 61 recommend buying Microsoft stock, while three recommend holding. The average price target is $556.19, which implies an increase of more than 40% from current levels.

Oninvest reviewed reports from five leading banks and analysts. The general consensus is that while capital expenditures are high, they represent an investment in the future rather than a waste of money.

In a note dated June 11, Wells Fargo noted that the company’s development of its own family of MAI AI models addresses the business need to optimize token consumption (by not assigning simple tasks to powerful and expensive models). Another interesting detail: Wells Fargo estimated that 80% of corporate AI projects are currently failing, but paradoxically, this is precisely what is driving companies to increase their investments in stack modernization and cloud migration. On July 15, the bank lowered its price target for Microsoft from $650 to $625, while maintaining an “outperform” rating. In its commentary, Wells Fargo noted that the revised price target reflects a more conservative outlook, but the analyst team remains confident in the company’s long-term growth prospects.

In a note dated June 26, Deutsche Bank (target price of $550 and “Buy” rating) conducted an almost surgical analysis of the profitability of the Azure cloud service, which is not disclosed separately. Its assessment: Azure’s margin has indeed declined due to costly investments in AI infrastructure, but Microsoft has been able to offset most of this pressure through more efficient management of other expenses. According to the forecast, as the most capital-intensive phases of cloud infrastructure expansion are left behind, Azure’s margin will stop declining, and the profitability of Microsoft’s entire Intelligent Cloud division will begin to gradually improve.

In early July, BMO Capital Markets slightly lowered its price target for Microsoft from $515 to $500 due to expected growth in capital expenditures related to component prices. However, all hyperscalers are currently incurring these costs, and based on the PEG ratio (price-to-expected-earnings-growth ratio), Microsoft outperforms, for example, Oracle—precisely because of its lower current valuation, analysts say. Analysts maintained their “outperform” rating for Microsoft.

HSBC (rated “Buy,” target price: $571) wrote in a note on July 9 that the market is currently underestimating the extent to which Azure could become a platform for cross-selling an entire ecosystem of AI services to existing customers. In their view, this is precisely what should drive accelerated revenue and profit growth for the company in the coming years, while simultaneously increasing switching costs to competitors.

And finally, Citizens JMP has an “outperform” rating and a price target of $550. In a note dated July 7, analysts highlighted the growing concern among large companies about the security of their data.

Now that's interesting—what kind of concept is this?

As is easy to see, investors are primarily concerned about Microsoft’s massive capital expenditures on building new data centers— the company plans to spend $190 billion by 2026—but Nadella is confident that these expenses will pay off.

How does he do that? He has developed and is promoting an entire philosophical concept, which he articulated in a post on his personal blog on July 12, 2026: “The Reverse Information Paradox.” The essence of his idea is that companies are currently paying for AI twice—first with money, and then with something far more valuable: their data and expertise.

"The more you want the model to perform better, the more knowledge you have to feed it," Nadella points out.

In his view, models gain unique insights into your business from the prompts and corrections that people enter—insights that cannot be obtained in any other way.

The solution Nadella proposes is predictable for the head of a cloud giant—as a reminder, Microsoft Azure is currently the second-largest cloud provider in the world.

"He wants companies to 'retain ownership' of their data, including suggestions, feedback, and so on. That’s why he’s urging them to create ‘their own training environments’ in the cloud (where their data is most likely already stored, and, conveniently, that could be the Azure cloud),” notes TechCrunch.

Microsoft has a structural advantage here: 450 million Microsoft 365 users are already working within its ecosystem. 15 million of them are paid Copilot subscribers, and that number is growing. “50 respondents reported that they have already implemented AI agents using Microsoft solutions. Another 35 are using DIY agents, 24 are using Anthropic solutions, and 19 are using Salesforce’s Agentforce platform. The popularity of Microsoft Copilot may surprise some, given the rather mixed reviews it has received. However, this clearly demonstrates the strength of Microsoft’s near-monopoly in the office software market (primarily the Microsoft Office suite),” according to a July survey by Guggenheim of 150 large enterprises (available at Oninvest).

In addition, Microsoft subtly points out that powerful models from major AI labs, such as Anthropic, are too expensive to use (they don’t say “unlike ours,” but that’s the implication).

"We appreciate the steady leadership provided by CEO Satya Nadella, which is complemented by the financial expertise and cost-control skills of CFO Amy Hood," according to the Citizens JMP report.

They’re right about stability. If we look back at history, Nadella has already pulled Microsoft out of a deep crisis once before.

That's how *Vanity Fair* magazine vividly described the period from 2001 to 2012 14 years ago.

But in reality, things were even worse—as we now know, it took nearly 17 years for Microsoft’s stock to recover to its previous highs and continue rising after the dot-com bubble burst.

In December 2000, Microsoft was the world’s most valuable company, with a market capitalization of $510 billion. By June 2012, its value had fallen by half to $249 billion. During the same period, Apple, for example, grew from $4.8 billion to $541 billion. “A single Apple product—the iPhone, which didn’t even exist five years ago—generates more revenue than the entire Microsoft,” Vanity Fair marveled.

What happened to the company? Vanity Fair blames it all on Steve Ballmer, Microsoft’s CEO at the time, who succeeded Bill Gates in that role in 2000. Under his leadership, the company lost its drive, became too bureaucratic, innovation was stifled by endless meetings, and the employee “incentive” system was designed in such a way that, instead of fostering teamwork, it encouraged internal competition, intrigue, and backstabbing.

This entire period reads like a chronicle of missed opportunities. Microsoft tried to compete in e-books, music, search, and social media—and failed in every area. Zune never became the iPod, Bing never became Google, and Windows Phone launched too late and died out, despite positive reviews. The social network So.cl (does anyone even remember that?) never became Facebook.

Balmer did deny these allegations, but the fact remains that the company never managed to climb out of the hole before he left in 2014.

In 2014, Satya Nadella became CEO—and this was perhaps one of the best personnel decisions in the history of the tech industry. Nadella pivoted the company toward the cloud by launching Azure. He also shifted sales of Office and Windows from one-time licenses to Microsoft 365 cloud subscriptions, transforming volatile revenue into a stable cash flow. Finally, the company—which had been at odds with open source for decades—embraced open-source software, partnerships, and cross-platform compatibility. As a result, by 2018, CNBC acknowledged that the company had returned to the big leagues. Microsoft’s market capitalization has grown from approximately $300 billion in 2014 to nearly $3 trillion today.

No one knows yet who will win the AI race. OpenAI, Anthropic, Google, Meta, and SpaceX—they’re all betting big. But Microsoft has its own trump cards—a huge number of corporate users and... Satya Nadella.

This article was AI-translated and verified by a human editor