Key insights
- Microsoft's stock experienced a significant surge in May, driven by strong earnings, positive analyst sentiment, and a broader rally in AI stocks. However, the stock has reversed some of these gains in early June, coinciding with a pullback in AI stocks and broader macroeconomic concerns, as indicated by recent market movements and upcoming economic data.
Microsoft (MSFT 1.87%) stock closed out May's trading with a double-digit gain, up 10.4%. The S&P 500 gained 5.2% over the same period, and the Nasdaq Composite rose 8.4%.
Microsoft's valuation moved higher in conjunction with bullish momentum for the broader market last month, but positive coverage from analysts also played a role in the stock's gains. Despite a favorable backdrop for tech stocks in this year's trading, the tech giant's stock is still down roughly 14% in 2026.
May was a month of strong bullish trading for artificial intelligence (AI) stocks, and Microsoft's share price moved higher in conjunction with the trend. While the company's valuation has faced pressures this year as investors assessed the possibility that some of the company's offerings could be at risk of AI-related disruption, last month's trading saw investors move back into the stock.
Microsoft was coming off a strong quarterly report published at the end of April, which saw the business record non-GAAP (adjusted) earnings per share of $4.27 on revenue of $82.89 billion. The average analyst estimate had targeted adjusted earnings per share of $4.06 and sales of $81.39 billion. On the other hand, the midpoint of the company's guidance for revenue between $86.7 billion and $87.8 billion fell short of the average analyst estimate's call for $87.53 billion in the period. While Microsoft initially saw sell-offs following the report, the stock bounced back in May's trading.
Amid a bearish backdrop for the broader market, Microsoft has given up much of last month's gains early in June's trading. As of this writing, the stock is down roughly 7.5% this month. Meanwhile, the S&P 500 is down 2.6%, and the Nasdaq Composite is off 4.7%.
Coming on the heels of a powerful rally, AI stocks have gotten hit with a pullback recently -- and macroeconomic concerns have played a big role in the sell-off. The Bureau of Labor Statistics published its jobs report for May last Friday, and the report actually showed that job growth in the period was far stronger than anticipated. While it may seem counterintuitive, investors are worried that the strong jobs report could be a negative for the stock market.
With economic activity looking relatively resilient, the Federal Reserve may prioritize combating inflation and choose to raise interest rates. Growth stocks tend to perform much better in a low-interest rate environment, and it's possible that a rate hike could have a substantial bearish impact on Microsoft and other big tech names.