Why Microsoft Stock Rallied Today

What happened 

Shares of Microsoft (MSFT 3.07%) rose more than 3% on Thursday, as analysts defended the popular tech stock after its post-earnings decline, and investors grew increasingly excited about its artificial intelligence (AI) initiatives.

So what

Microsoft suffered a bit of a stock price swoon early on Wednesday despite delivering a relatively solid earnings performance, driven by strong gains in its cloud revenue.  Some investors were apparently frazzled by CFO Amy Hood’s somewhat tepid revenue guidance of $50.5 billion to $51.5 billion for the current quarter, which was slightly below the consensus estimate of roughly $52 billion. 

Yet Microsoft was likely being conservative due to concerns of a potential recession, which could curtail tech spending. However, the stronger-than-expected GDP figures released this morning helped to lessen those fears — and give hope that even if there is a recession, it will likely be mild.

Piper Sandler analyst Brent Bracelin, in turn, believes that Microsoft’s growth may have already bottomed. He thinks several of Microsoft’s major business segments — such as Windows, devices, and advertising — have seen the worst of the economic downturn and should begin to recover in the coming quarters.

Additionally, Morgan Stanley analyst Keith Weiss praised Microsoft’s market share gains in the cloud computing market. He expects this cloud growth, combined with the company’s cost-cutting moves, to help improve Microsoft’s profit margins in the coming year.

Now what

Microsoft’s shares also likely received a boost from news that BuzzFeed (BZFD 119.88%) plans to use artificial intelligence to enhance its popular digital media offerings. BuzzFeed intends to work with ChatGPT creator OpenAI to better personalize content for its readers, according to the Wall Street Journal

Microsoft announced a long-term partnership with OpenAI on Monday. The two organizations will work together to accelerate the development of cutting-edge AI technology. Microsoft also took a multibillion-dollar investment in the AI-focused start-up and therefore stands to benefit as OpenAI’s tools are adopted more broadly.

Joe Tenebruso 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.