Why Microsoft Stock Slipped Today
Key Points
This is derived from concerns about the AI spending reported by a peer sector giant.
It also appears as if the Xbox business isn't doing well.
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A continuing rout of certain segments of the tech sector put some hurt on Microsoft (NASDAQ: MSFT) stock on Thursday. Investors also digested a media report about a long-standing unit of the company reducing its workforce. By the end of the trading day, its equity had shed nearly 2% of its value.
Boxed in
Much of the downbeat sentiment in the sector stemmed from Oracle's latest earnings report, released after the market close on Wednesday. At first glance, it was encouraging, with double-digit sales growth and top- and bottom-line beats.
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However, investors grew worried about the company's guidance for significantly higher capex on artificial intelligence (AI) investments, and therefore its cash flow. Since other sector incumbents are also pushing hard into AI, many suffered the same fate as Oracle, which was sold off aggressively in the Thursday session.
Also, following Wednesday's market close, Bloomberg reported that Microsoft is aiming to enact significant job cuts at its Xbox video game console division. Citing unnamed "people familiar with the matter," the financial news agency wrote that the scope of the reductions hasn't yet been made clear.
They are expected to begin after the close of the company's fiscal year, which is June 30.
Unfairly punished
While Microsoft is also focused and determined to pursue AI investments, it has numerous thriving revenue streams and a free cash flow line that's still far in the black. As for Xbox, despite its position in the gaming world, it's not a make-or-break business for its owner.
This makes me feel that the Microsoft rout on Thursday was an overreaction to outside events. I'd be even more bullish on this solid and dependable performer after the resulting price dip.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Oracle. The Motley Fool has a disclosure policy.
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