Microsoft Stock Breaks Weekly Losing Streak at Seven

Microsoft's stock (NASDAQ: MSFT) has been coming under some pressure through the first quarter of the year, down 6.53% on the year. The stock had looked to be set for an unenviable eighth consecutive week of losses, before a late Friday rally in the closing 15 minutes led the stock to break the streak at seven. An unwanted streak for what has been referred to as the ‘Lag 7' this year, due to the underperformance.

Several factors are contributing to the pullback in sentiment surrounding Microsoft, particularly its significant investments and strategic positioning in the artificial intelligence (AI) sector.

Microsoft has invested $14 billion in OpenAI, reflecting a strong commitment to AI development and integration. However, disagreements concerning the business model of OpenAI's ChatGPT have led to competitive tensions between Microsoft and OpenAI. Microsoft’s strategy is to leverage AI technology to enhance its Azure cloud services, aiming to gain an edge amidst increasing competition from major players like Amazon, Alphabet, and Meta.

Despite this strategic focus, a key challenge facing Microsoft and other technology companies is efficiently monetising AI products. Many AI applications are available for free, while others, like those from DeepSeek, are open-source, complicating revenue-generating efforts. Another significant challenge is the energy demand required to run AI services. The current US electricity generation infrastructure may struggle to meet this anticipated demand, which poses a potential barrier to growth in the sector.

While Microsoft once held a leadership position within the AI industry, there is a perception that its position is diminishing. An expert renowned for accurately predicting NVIDIA's success back in 2009 has pointed towards an anticipated major AI breakthrough by 2025. This outlook suggests potential shifts in market dynamics and further emphasizes the necessity for Microsoft to effectively address current challenges to maintain and potentially enhance its position in the rapidly evolving AI landscape.