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Microsoft Slumps Heading Into Earnings—Here's What Matters Most
Written by Chris Markoch. Article Published: 1/23/2026.
In Brief
- Microsoft stock remains under pressure as a bearish death cross pattern lingers ahead of the company’s Jan. 28 earnings report.
- Investors should focus on Azure growth, AI monetization, and capital spending to assess whether Microsoft’s heavy AI investments are paying off.
- MSFT valuation has become more attractive after the pullback, reinforcing the stock’s appeal as a long-term buy despite near-term technical weakness.
Microsoft Corporation (NASDAQ: MSFT) stock has continued the three-month slide that began after the company's last earnings report.
With only a few days left before earnings, MSFT has yet to recover from the bearish death cross that formed in November 2025.
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Watch the video to get the ticker nowIt could be headed for a double dip — a renewed decline after a brief recovery. What does that mean for investors as Microsoft prepares to report results on Jan. 28?
A death cross occurs when a stock's short-term simple moving average (usually the 50-day SMA) crosses below a longer-term SMA (typically the 200-day). It's considered bearish because it indicates both short- and long-term momentum are weakening.
Like any technical signal, a death cross isn't foolproof. For long-term investors, a subsequent golden cross can present buying opportunities in high-quality stocks, and earnings releases sometimes trigger swift reversals.
Microsoft's Next Earnings Report Hinges on Azure and AI
Investors will be watching for evidence that AI investments and cloud expansion are translating into tangible results. Key metrics include Azure growth—particularly whether AI workloads are driving incremental revenue rather than merely shifting existing demand. Early adoption and monetization of products like Copilot and other enterprise AI tools could signal longer-term productivity gains.
Capital expenditures are also in focus. Shareholders will want to know whether Microsoft is continuing disciplined spending on new data centers or signaling plans to scale back after heavy AI-related investments. Margins will be closely scrutinized: the market will weigh whether growth initiatives remain sustainable without eroding profitability.
Finally, the tone of guidance matters—any reassurance on steady revenue and AI adoption trends could stabilize the stock heading into a potentially volatile quarter, even if management doesn't materially beat expectations.
Valuation Looks More Reasonable After the Pullback
One benefit of the recent slide is that MSFT now looks more reasonably valued. The trailing 12-month price-to-earnings (P/E) ratio is about 31.5x, near the lower end of its five-year historical range and below many technology stocks trading at 35x or higher. For long-term investors, the pullback may be an opportunity to add to a core holding at a more attractive entry point.
Microsoft's business is diversified across productivity software, cloud computing, and emerging AI platforms. Even if some areas face short-term headwinds, the broader revenue mix and strong free cash flow help cushion the company from severe earnings shocks.
Overall, the market appears to be pricing in a moderation of growth rather than a permanent slowdown—an environment that may suit disciplined investors focused beyond the next quarter.
Challenges to the Buy-and-Hold Thesis
The biggest risk to holding MSFT or taking a long trading position centers on concerns about an AI bubble. Microsoft is investing tens of billions of dollars to build out data centers, but even the CEO has acknowledged that AI still has kinks to work out.
The bearish case argues that many companies may decide AI won't deliver enough long-term value to justify the applications and infrastructure that would sustain demand for data centers. If that happens, even a cash-rich company like Microsoft could face earnings pressure.
How likely is that? It's difficult to say. Many critiques focus on generative AI, an area where Microsoft is a clear leader. The next wave—agentic AI—is still in its infancy and is expected to drive larger productivity gains, but adoption may be less visible in the near term.
Microsoft Is a Stock to Own for the Long Haul
MSFT can be considered a core holding for many portfolios. The stock has been under pressure for several months, but Microsoft is participating across major technology trends in 2026, including multiple layers of the AI stack.
A sharp pullback can be unsettling, but as the saying goes, "when in doubt, zoom out." To illustrate this, here's the one-year price chart for MSFT:
Now look at the five-year chart:
Viewing performance through a wider lens helps investors understand what's normal for a stock. In Microsoft's case, prior pullbacks have historically been followed by higher highs, which may reassure long-term investors considering the next entry point.
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