Source: Wall Street See

$Microsoft (MSFT.US)$ The stock price has cumulatively risen by about 12% since the beginning of this year, lagging behind other technology giants. Among the "Magnificent Seven" in usa tech stocks (Mag 7), not to mention the nearly 200% surge this year. $NVIDIA (NVDA.US)$ Even $Apple (AAPL.US)$ 、 $Alphabet-A (GOOGL.US)$ / $Alphabet-C (GOOG.US)$、 $Amazon (AMZN.US)$ and $Meta Platforms (META.US)$ The increase is at least about 20%.

Why has microsoft lagged this year? Goldman sachs' top technology trader Peter Callahan believes there are several key reasons for this, including $Tesla (TSLA.US)$ being too "money-gathering." They are as follows:

• This year has lacked positive eps (earnings per share) revisions. Microsoft's eps revisions have stalled over the past year.

• The growth of microsoft's Azure cloud computing service is different from its peers. Compared to google cloud, Azure's growth is slowing down, and oracle cloud is accelerating growth compared to Azure, leaving Azure in a stable position.

• The market believes that the maturity speed of the AI "application" story is slower, such as Office Copilot, improvements in Bing, and AI agents.

• Capital expenditure progress is uncertain, unable to "digest" the headwind on profits,

• debates about the foundational models/large language models (LLM) world (microsoft's partnership with OpenAI, comparisons with models like Meta Lama and google Gemini)

• Investors are putting funds into other giants.

Regarding the point mentioned last, Callahan pointed out that the third quarter's hold positions show that mutual funds underweighted Mag 7 by 806 basis points, exceeding the 671 basis points in the second quarter. Among Mag 7, four stocks ranked among the top 20 for shareholding reduction, namely microsoft, Alphabet, meta platforms, and nvidia, while Tesla was the stock with the highest shareholding increase.

Looking ahead, what factors could change the narrative regarding microsoft?

• Azure performs excellently (for example, stable growth or accelerated growth in Azure in the second half of the year).

• Demonstrating operational leverage/improved ability to revise EPS.

• Clear signs of growth momentum in application-layer generative AI.

• Other blue-chip technology stocks losing favor (for example, capital expenditure/operation issues or e-commerce/ad anxiety, etc.).

For the third point above, Callahan quoted a review from goldman sachs analyst Kash Rangan's report on this Tuesday's microsoft Ignite conference. The report stated that due to microsoft's investment in OpenAI largely being factored into the EPS consensus expectations for the fiscal year 2026, goldman sachs believes that microsoft's next potential catalyst is the re-accelerated growth of Azure starting in the third quarter of the fiscal year 2025, which is the first quarter of next year.

The report stated that Goldman Sachs believes that Microsoft's new platform Azure AI Foundry (preview version), the upcoming AI Agent Service, and the Copilot Studio being adopted by over 100,000 organizations are all promoting customer adoption of Azure AI. The usage of Azure OpenAI Services has doubled within six months, indicating that customers are looking for real use cases to leverage these technologies.

The report mentioned that the significant improvements in Microsoft 365 Copilot's performance have led Goldman Sachs to believe that Copilot could evolve into a key generative AI use case, with its response speed improving twofold and satisfaction rates tripling. Microsoft's dramatically enhanced functionalities, such as Copilot Actions, Pages, Agentic AI, and expanded use cases in customer service and manufacturing, are rapidly entering the market, which could accelerate value realization and impact Microsoft's revenue.

The report also mentioned that Microsoft is building an AI ecosystem that includes cost management (using Copilot Analytics, GA, and other products), enterprise controls (AI model governance), and security. This ecosystem's development could facilitate the easier deployment of Copilot across Microsoft 365's more than 0.4 billion users, mainly enterprises.

Editor / jayden