Why Microsoft Stock Topped the Market Today
Key Points
It felt as if the monster software stock sell-off of last week had abated.
Microsoft was a poster boy for that bearish wave.
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Following a lousy week that saw Microsoft (NASDAQ: MSFT) and other software stocks really take it on the chin from investors, Monday provided a glimmer of hope. The segment as a whole recovered somewhat, with Microsoft posting a more than 3% gain on the day and handily beating the S&P 500 index's 0.5% rise.
Beaten-down buys
Microsoft benefited from several positive developments as the trading week kicked off. One was a new analysis of software stocks by influential investment bank Morgan Stanley, which flagged nine beaten-down titles as attractive buys on share price weakness. Microsoft was prominent in that grouping.
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According to reports, the bank's analyst, Keith Weiss, wrote that bearish investors were underestimating the ability of veteran developers to benefit from incorporating artificial intelligence (AI) into their offerings. In his view, fears that these companies would struggle in the great AI race were becoming overblown. https://www.fool.com/investing/stock market/market-sectors/information-technology/ai-stocks/
Separately, CNBC reported that OpenAI, the developer of the high-profile ChatGPT AI model, had returned to monthly growth of over 10% in terms of both user count and overall usage. Microsoft is heavily invested in OpenAI, with a 27% stake in the company it recently valued at $135 billion.
Major fears abated
I also believe the sell-off in Microsoft -- and other software luminaries, while we're at it -- was overdone. It isn't hard for fear to spread across the market, particularly in the often fluid, high-stakes world of Big Tech.
Yes, Microsoft is going full-bore on AI, and its considerable investment into the tech might not always produce satisfying returns. However, it's inarguable that AI is the future of competing, and the price for staying competitive is high. As it ever does, Microsoft will find a way to make this work to its advantage.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool has a disclosure policy.
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