Microsoft sign at the headquarters by VDB Photos via Shutterstock
Software stocks did not have a great start to 2026. The iShares Expanded Tech-Software ETF (IGV) fell more than 20% from its recent peak, and when its 50-day moving average dropped below its 200-day, it confirmed a “death cross” that pushed many investors to sell.
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After two years of heavy buying on AI hype, reality started to set in. Many software companies admitted that building AI features is expensive, with about 70% saying those costs are hurting margins.
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Microsoft Corporation (MSFT), which makes up about 8-8.4% of the iShares Expanded Tech-Software ETF, has been right in the middle of this reset.
The stock dropped 10% after reporting strong earnings, beating both revenue and profit estimates, but investors still cut its valuation as Azure growth slowed slightly from 40% to 39%. That same concern showed up again in July when Citi analyst Tyler Radke cut his price target on Microsoft from $620 to $570. He pointed to ongoing multiple compression across software, even while keeping a “Buy” rating and expecting a strong fiscal Q4. Citi has now lowered its target several times this year, from $690 to $660 in January and from $635 to $600 in April, each time staying positive on the stock.
Microsoft’s fundamentals are still strong, but its valuation keeps getting adjusted. So is this just short-term pressure, or something more lasting?
Breaking Down Microsoft’s Latest Numbers
Microsoft runs a broad business built on the Azure cloud, workplace software like Microsoft 365 and Dynamics, and products like LinkedIn, Windows, and gaming. A big part of its strength comes from steady, recurring revenue and long-term enterprise customers.
Even with that, the stock has been under pressure, down 23% over the past 52 weeks and 18.6% year-to-date (YTD).
www.barchart.com
That pullback has brought valuation closer to peers, with Microsoft…
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