Microsoft stock (MSFT) is showing signs of a potential downturn, with an alarming pattern emerging on the stock’s daily charts. According to one analyst from Wolfe Research, a 20% drop could be imminent, and Microsoft must “make a stand here.” The firm noted that the stock has been forming a topping pattern for months, and must break out soon to avoid a steep drop.
MSFT’s recent losses have led to the stock losing the $400 support level, as it hopes to regain that level soon. Upon the market close Wednesday, MSFT traded at $388. Wolfe’s initial downside target of $385 is dangerously close. Hence, the analysts suggest that if the stock fails to hold this level, “this yearlong top has the potential to count to $315-335.” A fall to $315 would reflect as much as a 20% drop from current prices.
Additionally, amid the current trading levels, the stock has triggered a death cross formation for the first time in almost a decade, according to market analysts. This pattern, characterized by a short-term moving average (MA) crossing below a long-term moving average, specifically, a downward-sloping 200-day moving average, has historically been viewed as a bearish signal.
Why Has Microsoft Stock Fallen?
The recent selloff in Microsoft (MSFT) stock has come amid broader weakness in artificial intelligence-related stocks. The company’s recent earnings report didn’t wow investors, marking the third consecutive quarter of negative post-earnings reaction. While its AI services showed growth, monetization has been slower than expected, and concerns have emerged over its partnership with OpenAI following the rise of Chinese AI startup DeepSeek. While some investors are a fan of Microsoft’s recent AI spending and investments, others worry that it will send the company away from its core values and thus drop stock.
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Despite the signs of slipping up, several market experts still have high hopes for MSFT stock in 2025. There is no shortage of reasons for investors to be excited about Microsoft’s trajectory in 2025. Indeed, the Windows developer looks poised to make headway in several critical facets, including the still-developing quantum computing sector. Microsoft stock holds a $501 median price target according to analysts surveyed by CNN. That would represent a 28% increase from its current position.
Some analysts view Microsoft’s drop as an opportunity to buy, with shares now trading below 27 times forward earnings. However, Wolfe’s technical analysis suggests near-term risks remain unless the stock can stabilize above support levels. Therefore, it’s difficult to determine if now is the time to buy or if the stock may fall a bit further.