‘Don’t Buy the Dip,’ Says Investor About Microsoft Stock

Microsoft (NASDAQ:MSFT) entered 2026 riding years of steady gains, but the tone has shifted. The stock is now down about 20% year-to-date, reflecting a reset in expectations around its AI push. The company continues to invest heavily in data centers and infrastructure to support long-term growth, yet the financial benefits from that spending are still taking shape, raising concerns about margins and capital intensity.

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At the same time, Azure growth – long a core pillar of the story – has come in below the market’s most optimistic expectations, prompting questions about how quickly AI demand will translate into meaningful revenue acceleration.

Valuation has also played a role. After a strong multi-year run, the stock entered 2026 priced for near-flawless execution. As sentiment toward AI names cools and investors reassess risk, that premium has started to unwind.

Still, the underlying business continues to deliver. Microsoft reported $81.3 billion in revenue in its fiscal Q2 2026, up 17% year-over-year, while GAAP net income climbed 60% to $38.5 billion. Moreover, with Microsoft Cloud’s remaining performance obligations standing at $625 billion, the company retains a substantial runway for growth as AI adoption continues to build.

So, is this a chance to step in while MSFT stock is under pressure, or a sign that expectations still need to come down? Investor Vladimir Dimitrov isn’t convinced the recent pullback is enough to change the equation.

“While there’s certainly some truth in the notion that MSFT is priced attractively, the opportunity behind MSFT is not as straightforward as most retail investors think,” the investor opined.

Dimitrov points out that cracks are starting to appear in some of Microsoft’s key segments. Growth in Productivity and Business Processes eased last quarter, slipping from 17% in fiscal Q1 2026 to 16% in Q2, while the More Personal Computing segment moved in the opposite direction, with revenue declining 3%. Furthermore, when it comes to the much-heralded cloud computing, Azure’s growth of 39% in the last quarter was also down from the 40% it delivered in FY Q1.

Moreover, Microsoft’s capital spending is ramping faster than expected, which is beginning to weigh on profitability. Gross margin came in at 68%, down slightly year-over-year, and Dimitrov believes the pressure is unlikely to ease. As the company continues investing in cutting-edge AI infrastructure, the investor expects margins to remain under strain in the years ahead.

And that leaves Dimitrov with a bit of a dour prediction as the current year rolls along.

“I do not expect the stock to deliver above-market returns in 2026,” concludes Dimitrov, who assigns MSFT a Hold (i.e., Neutral) rating. (To watch Vladimir Dimitrov’s track record, click here)

Wall Street, however, agrees to disagree. With 33 Buys and 3 Holds, MSFT boasts a Strong Buy consensus rating. Its 12-month average price target of $590.65 points to an upside of ~53% from current levels. (See MSFT stock forecast)

Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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