Should You Sell Microsoft Stock Now?

Microsoft  (MSFT) - Get Free Report made waves recently when it said it plans to charge Office365 customers for access to its artificial intelligence solution, Copilot. The news likely struck a nerve with cost-cutting customers, but investors initially cheered, sending Microsoft's stock price to a new all-time high.

Since then, it's been tougher sledding for shareholders. Microsoft's stock price has retreated about 7% from its July 18th high to its close on July 24. 

Will shares find their footing, or are they likely to continue lower? 

Microsoft Makes a Big Bet on AI

Earlier this year, Microsoft leveraged its relationship as the cloud server provider for OpenAI's ChatGPT to make a big splash in artificial intelligence. 

The company integrated ChatGPT into its Bing search engine, hoping to chip away at Alphabet's  (GOOGL) - Get Free Report lead in a market worth $300 billion worldwide. 

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So far, that's done little to boost Bing's global market share. Alphabet's Google remains the de facto leader by far. In June, Bing's worldwide market share was 2.77%, down slightly from 3.03% in December, according to Stat Counter. Meanwhile, Google's market share was 92.6%, essentially flat over the same period.

Integrating AI into Microsoft's search could still pan out over time, given the search market's size, but incorporating it into other Microsoft solutions may have a more immediate impact. 

For example, Microsoft plans to charge businesses an additional $30 per user to access Copilot, its AI tool for Office365. Over 1 million businesses subscribe to Office365. 

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Wall Street analysts applauded the decision because of the potential to boost revenue and profit. For example, Jefferies' Brent Thill said if half of the 115 million subscribers on Microsofts E3 and E5 tiers sign-up for Copilot, it could add $20.6 billion in revenue, a 53% increase to Office365's revenue in fiscal 2023.  Microsoft's revenue totaled $52.9 billion in the fiscal quarter ending March 31.

Microsoft's Charts Suggest Upside Is Limited

Thill has a $400 price target on Microsoft stock, up almost 16% from its close on July 24. That's not shabby, but it pales compared to Microsoft's 44% year-to-date return.

Technical analysis suggests that the upside could be even less, though. In a recent Real Money post, veteran technical analyst Bruce Kamich reviewed Microsoft's price charts for clues to what may happen next. 

After considering Microsoft's daily and weekly point-and-figure charts, he calculated a price target of $371 and $383, respectively. Those targets are just 8% and 11% above where Microsoft shares are currently trading.

Those arguably tepid targets could make taking some Microsoft shares off the table prudent. Microsoft is scheduled to report its latest fiscal quarterly results after the stock market closes on July 25. Its shares could pop or drop depending on what management says on its conference call.

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"The best course of action with the pace of the rally slowing is to take some profits. I don't see reasons to exit your entire position, just enough to trim some gains," concludes Kamich.