Microsoft (NASDAQ: MSFT) climbed 1.8% to $402.70 on Thursday afternoon, extending Wednesday’s 2.8% gain even as the Nasdaq Composite fell roughly 1% in a chip-led selloff.
The two-session advance of 4.6% since Tuesday’s close added approximately $132 billion to Microsoft’s market capitalization, a striking divergence from broader market weakness.
Price action suggests traders are actively separating enterprise AI revenue from chip-cycle risk, with semiconductor stocks falling sharply despite continued spending on AI infrastructure.
Three brokerages lowered their Microsoft price targets on Wednesday, though each retained a positive rating, while a fourth firm raised its objective.
Citigroup (NYSE: C) analyst Tyler Radke cut his target to $570 from $620, calling Microsoft “increasingly strategically positioned” as customers optimize AI-token spending.
The four targets published Wednesday ranged from $490 to $625, implying between 22% and 55% upside from Thursday’s trading price, though price targets are forecasts and not assured returns.
Microsoft’s price-to-earnings ratio sits 18.7% below the simple average of two major cloud peers, a discount that sets up the July 29 earnings report as a direct capital-efficiency test.
Azure revenue rose 40% in Microsoft’s fiscal third quarter, with management guiding for 39% to 40% constant-currency growth in the current quarter, signaling continued momentum in cloud infrastructure.
AI demand metrics reinforce the growth story, with Microsoft’s AI revenue run rate exceeding $37 billion and growing 123%, while paid Microsoft 365 Copilot seats surpassed 20 million.
Capital expenditure remains the central valuation concern, with third-quarter capex reaching $31.9 billion, roughly double the quarter’s $15.8 billion of free cash flow.
Management has guided for fourth-quarter capex above $40 billion, with a calendar-2026 plan of approximately $190 billion, including $25 billion attributable to higher component prices.
Chief Financial Officer Amy Hood stated that Microsoft remained “confident in the return on these investments,” offering reassurance to investors wary of the sustained spending pace.
Risks to the outlook remain visible, including margin pressure from higher component costs, potential revenue delays from capacity shortages, and competitive pressure from Alphabet and Amazon.
The July 29 earnings report will need to demonstrate that AI revenue growth is outrunning capital intensity, which analysts see as the clearest path to closing Microsoft’s persistent valuation discount.
