Just over six months ago, Microsoft Corp. (NASDAQ: MSFT) was trading at an all-time high of over $542. At that time, many analysts were whispering that many technology stocks were overvalued.
So, it shouldn’t come as much of a surprise that MSFT is down from those lofty heights. However, there weren’t many analysts who expected to get this kind of discount on MSFT. In fact, at the beginning of April, the stock was trading at around $357, erasing all its gains over a 12-month period.
Although MSFT is up nearly 5% in the last three months, even a strong earnings report wasn't enough to sustain upward momentum. Included in that report was the announcement that Microsoft's AI business has reached an annual revenue run rate of $37 billion, up 123% from a year ago.
It was the first time the company had updated the figure since reporting a $13 billion run rate in January 2025.
The News May Be Turning in Microsoft’s Favor
With earnings season in the rearview mirror, investors are left with a rare disconnect between a company that’s performing well based on fundamentals and a stock price that may offer a compelling entry point.
However, that means that investors still can get MSFT at an attractive valuation. The stock is trading at around 25x forward earnings. That’s about 30% below its five-year median average of 34x.
Here are three catalysts that could make that happen.
First, the OpenAI deal restructure, which was announced days before earnings, ended Microsoft's revenue share payments to OpenAI while locking in IP rights through 2032 and allowed OpenAI to serve customers across any cloud provider. Wedbush's Daniel Ives called the restructure a "net positive," raising his price target to $575, and flagged that Microsoft will now receive roughly $6 billion from OpenAI in 2026, compared to the $4 billion previously expected.
Second, the Copilot monetization story is sharpening. Copilot weekly engagement is now at the same level as Outlook, and the Microsoft 365 E7 bundle went generally available on May 1. Microsoft projects higher net subscriber growth in the June quarter compared to the approximately 5 million additions recorded in March.
Third, as of this writing, the company is just two weeks ahead of Microsoft Build (June 2–3 in San Francisco). This is where Nadella will keynote on "creating new opportunities for developers in this era of AI." The event will feature agentic AI, custom model deployment, and multi-agent frameworks. These are themes investors want to hear about.
And then there's the Bill Ackman angle: on May 15, Pershing Square announced Microsoft as a core holding, with Ackman highlighting the company's 365 productivity suite and the robust demand for Azure, arguing that concerns about growth are unfounded.
The Chart Shows a Bullish Contradiction
The 12-month chart for MSFT shows a clear intermediate downtrend from August 2025 to April 2026. The stock dropped about 35% over that time. That’s the momentum that the bulls have to overcome.
Despite a sharp recovery leg built on high momentum in early April, MSFT has failed to continue moving higher and is moving sideways at best. Volume is also lower.
The contradiction is that a bull flag appears to be forming. The pole was formed when MSFT climbed $80 off its April low. The “flag” is the current consolidation channel, drifting slightly sideways/down with tightening candles and declining volume.
Here’s the problem. The bull flag is occurring within a larger downtrend. That makes it a counter-trend pattern, which makes the odds of a bullish resolution to the flag pattern less likely. Some concerns are:
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The closing price on May 19 is still about $44 below the 200 SMA, which is sloping downward, meaning the bearish trend hasn’t reversed.
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The flag could be a distribution before another leg down.
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That leg down could take MSFT back to 52-week lows around $355 to $360.
However, if MSFT can make a move to close above its April high around $435, that could be a signal that the trend is reversing. If it does resolve positively, MSFT could jump about $80 above the breakout point.
That would put the stock at around $510 to $515. That aligns with a resistance zone from September to October 2025. However, it’s also notably below the consensus price target of $560.88.
One additional technical development worth watching: the 50 SMA ($399) is rising while the 200 SMA ($462) is still declining. If that gap continues to close and a golden cross forms—where the 50 crosses above the 200—it would represent a major sentiment shift that could accelerate institutional buying and push MSFT well beyond the bull flag target.
The article "Microsoft Stock Discount May Be Ending as AI Catalysts Build" first appeared on MarketBeat.
