The sell-off in technology stocks picked up steam on Mar. 31, 2025. The technology-heavy NASDAQ index continued to trend lower even as the Dow and S&P 500 made gains. As has been the case this year, blue-chip tech stocks like Microsoft Corporation (NASDAQ:MSFT) were among the targets.
MSFT is down 1.36% and has fallen below its 50-day simple moving average. As of Mar. 31, the stock was down 12.5% year-to-date, underperforming the NASDAQ over the same period.
Microsoft shares are now trading at levels not seen since January 2024 despite significantly higher revenue and earnings that continue to grow. That suggests buying the dip may be less a question of if and more of when.
Earnings May Be the Next Catalyst
With recent years of volatility, every earnings season feels like the most important. This may not be Microsoft’s most critical report, but it could validate what many analysts already believe about MSFT stock.
In its second-quarter earnings report for the 2025 fiscal year, Microsoft reported revenue of $69.6 billion, up 12% year over year (YOY), with $13 billion of that number coming from the company’s AI initiatives.
The company’s revenue strength was even stronger in its Intelligent Cloud and Productivity & Business Processes divisions, with YOY increases of 19% and 14%, respectively. When viewed over the lens of the past three years, revenue was nearly in line with the three-year average of 12.28%
The company’s Personal Computing business was the one area of revenue softness, which delivered a flat revenue of $14.7 billion. However, analysts believe more upside may come as the company phases out support for Windows 10 in October 2025. While it’s true that Windows 11 has been available since 2021, an upgrade cycle may be coming that is not priced into MSFT stock.
On the earnings front, the company delivered non-GAAP earnings per share (EPS) of $3.23, a 10% increase from the prior year. That tops the company’s three-year average by approximately 1%.
For its part, Microsoft is forecasting that growth in its third-quarter earnings will be slower than the prior quarter, but it’s still supposed to generate a double-digit revenue gain when it reports earnings for the quarter. The company plans to continue robust capital expenditure (capex) spending in AI in 2025. But with a profit margin of over 35%, investors shouldn’t be too concerned about the impact on the bottom line.
Valuation Is Starting to Look More Attractive
As of the close of trading on Mar. 31, MSFT stock is trading at a trailing 12-month price-to-earnings (P/E) ratio of 30.50. That’s a premium to its 15-year average of 23.5x.
When you look over the last three years, you’ll see that the stock is trading at a discount of around 8.3% to its average P/E ratio.
Some investors may dismiss that by asserting that technology stocks, in general, and the Magnificent Seven stocks, in particular, have become tremendously overvalued in the past three years.
The relative strength indicator (RSI) also shows MSFT stock drifting into oversold territory.
Analysts Are Growing Bullish Ahead of Earnings
Microsoft has a consensus price target of $508.86 on MarketBeat, 36% above its Mar. 31 close. But recent targets from Wedbush and Tigress Financial—$550 and $595—suggest even more upside potential.