Microsoft shares have been caught in a prolonged slide, trading near a six-month trough as the market wrestles with a central question: are the company’s massive AI infrastructure bets building future value or eroding it? The stock closed Thursday at €339.25, down 0.88%, extending a seven-session losing streak that has erased 3.24% of its value. At roughly 29% below the October 2025 record high of €478.10, the equity is also trading beneath its 50-day moving average of €346.94 — a technical signal that has done little to quiet the fundamental debate.
The selloff has been unusually broad for a member of the Magnificent Seven. Microsoft has shed 17.35% since the start of the year, the worst performance in that cohort. Yet a chorus of Wall Street analysts is pushing back, arguing the price action has divorced itself from the underlying business. Truist’s Terry Tillman maintains a buy rating with a $575 price target, describing the pessimism as disconnected from Microsoft’s operational reality. Oppenheimer’s Brian Schwartz, with an outperform rating and $515 target, sees the upcoming earnings release as a potential catalyst for the company to demonstrate that demand remains resilient, provided its AI division delivers sustained revenue growth alongside solid Microsoft 365 results.
Bernstein’s Mark Moerdler is more measured, calling Microsoft a high-quality business with limited downside risk while stopping short of predicting an inflection point in the next report. Still, his $646 price target implies roughly 62% upside from current levels. Morningstar, meanwhile, pegs the stock at a 36% discount to its $600 fair value estimate, making it one of the most undervalued names in its coverage universe as of July 2026. Bank of America echoes that view, noting the shares trade at 19 times expected 2027 earnings — well below the five-year average of 29.
The Capex Conundrum
The real flashpoint ahead of the July 29 fiscal fourth-quarter report is capital expenditure. Microsoft previously guided to $190 billion in capex for calendar 2026, a 61% year-over-year increase. Truist now models $252 billion in fiscal 2027 spending, above the $233 billion consensus, suggesting analyst estimates are still playing catch-up with the company’s actual investment trajectory.
Tillman frames the critical question differently than the market’s surface-level anxiety: it is not whether spending will remain elevated, but whether the pace of growth can moderate without crimping free cash flow — historically one of Microsoft’s defining strengths. Moerdler sets two conditions for a higher valuation: Azure’s growth must justify the outlays, and its gross margins must stabilize after being squeezed by CPU and GPU shortages as well as rising storage costs.
The technical picture offers no clear signal. The 14-day relative strength index sits at 49.7, squarely in neutral territory, leaving the fundamental debate over AI spending and cloud momentum to dominate the narrative. Several banks have trimmed their price targets in recent weeks while keeping bullish ratings intact, underscoring that the disagreement among analysts is less about Microsoft’s long-term prospects and more about the pace at which its investment cycle will translate into visible returns.
A European Infrastructure Pivot
Against this backdrop, Microsoft announced a major expansion of its partnership with French AI developer Mistral on Tuesday. The deal centers on a multi-billion-dollar investment in new AI infrastructure across Europe, targeting regulated industries that require strict data control. Mistral is contributing its own computing capacity, deploying thousands of Nvidia Vera Rubin graphics chips to build a shared platform for training, inference, and large-scale AI model deployment. Microsoft will use that European GPU infrastructure to expand its own cloud and AI services.
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On the product side, Mistral Medium 3.5 and OCR 4 are now available in Microsoft Foundry, with the former also entering Copilot Studio. Through Azure, companies can run Mistral models either in the cloud or fully disconnected from the internet, depending on their data privacy requirements. The partnership is designed to serve sectors with high compliance demands — critical infrastructure operators, industrial manufacturers analyzing production data on-site, and healthcare providers needing to safeguard patient information.
Nvidia executive Ian Buck framed the deal within a broader industry trend, noting that agent-based AI is driving demand for powerful, energy-efficient infrastructure to new levels. Mistral CEO Arthur Mensch emphasized the scale advantage: with Microsoft as a partner, his company’s models now reach enterprises and public institutions globally.
The Mistral expansion follows closely on the heels of a deepened infrastructure collaboration with AMD for new Azure AI and HPC servers. Microsoft is deliberately spreading its AI data center business across multiple chip and model partners rather than relying on a single supplier — a strategy that diversifies risk but also complicates the narrative around which investments will ultimately drive returns.
What to Watch on July 29
Microsoft reports fiscal fourth-quarter results on July 29. The prior quarter was strong: revenue rose 18% to $82.9 billion, GAAP net income increased 23%, and diluted earnings per share came in at $4.27. Azure and other cloud services grew 40%, or 39% in constant currency, remaining the primary growth engine.
The market’s focus will be on whether the massive AI investments are translating into stronger cloud growth. Demand for Azure, AI services, and paid Copilot subscriptions should support a solid quarter, but the elevated capex could continue to weigh on sentiment. Whether the Mistral and AMD partnerships have already generated measurable effects in the upcoming report may prove decisive for the stock’s near-term direction.
For now, the tension is clear: Microsoft is spending billions to build the infrastructure of the next computing era, and the market is waiting for proof that the returns are coming. The July 29 earnings call will be the next big test of whether that patience is warranted.
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