Why Microsoft stock is underperforming the broader market today

Shares of Microsoft MSFT slipped in early trading on Friday, underperforming both the broader market and major technology peers.

Microsoft stock fell around 1% even as other large-cap technology companies rallied strongly.

Nvidia and Tesla rose roughly 3%, while AMD surged nearly 7%.

The broader market also moved higher. The S&P 500 advanced about 0.6%, while the Nasdaq Composite gained 1.1%.

Investor sentiment was supported after the Bureau of Labor Statistics reported that US nonfarm payrolls rose by 115,000 in April, well above economists’ expectations for 55,000 job additions, according to Dow Jones data.

All three major indexes were on track to finish the week higher as corporate earnings season continued to deliver largely strong results.

TCI slashes Microsoft stake

Pressure on Microsoft shares also followed news that hedge fund TCI had sharply reduced its position in the software giant amid concerns that artificial intelligence could threaten some of the company’s core businesses.

According to an investor letter seen by the Financial Times, TCI cut its Microsoft holding from 10% of its portfolio at the end of last year to just 1% by the end of March.

The fund, led by Christopher Hohn, had maintained a large investment in Microsoft for much of the past decade and benefited from the company’s nearly 400% share price rise over the last nine years.

“We reduced our investment in Microsoft because the rapid progress in AI introduces uncertainty over Microsoft’s competitive position in the future,” Hohn told investors in the letter.

He added that TCI was particularly concerned about Microsoft’s Office productivity software business, where AI could reshape traditional workflows and create new competing productivity platforms.

The letter also cited potential risks to Azure, Microsoft’s cloud computing platform.

Microsoft’s close partnership with OpenAI had previously helped drive investor enthusiasm during the AI boom.

However, the stock remains down about 14% year-to-date amid growing scrutiny over the company’s ability to generate sufficient returns from its substantial AI-related investments.

The investor letter also showed that TCI increased its position in Alphabet from 3% to 5% of the portfolio during the quarter, making it the fund’s largest technology holding.

Analysts remain bullish

Despite investor concerns, several Wall Street analysts continue to maintain a positive long-term outlook on Microsoft.

Tigress Financial Partners analyst Ivan Feinseth raised his 12-month price target on Microsoft to $680 from $595 while maintaining a Buy rating.

Feinseth said Microsoft’s AI business remains in its early stages and argued that strong demand for Azure cloud services and AI products would support accelerated revenue and cash flow growth over time.

Barclays also reiterated its Overweight rating following recent meetings with company management.

The bank said Microsoft’s strategy “remains on track,” highlighting improving operational efficiency and growing adoption of the company’s Copilot AI tools.

According to Barclays, increasing Copilot usage could eventually support a transition toward more usage-based pricing models, potentially creating an additional long-term revenue driver for Microsoft.