Microsoft: A Rather Sticky Wicket

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Now, listen here. It’s been a frightfully grumpy start to 2026 for those who’ve put their pennies into Microsoft (MSFT 1.57%). The share price has taken a bit of a tumble, down about 18% since the New Year, and a whopping 29% from its peak. A most unpleasant sight, wouldn’t you agree?

This isn’t just Microsoft, mind you. A whole gaggle of tech companies are looking rather peaked, thanks to a bit of a wobble amongst the investors. They’re all getting twitchy about this newfangled Artificial Intelligence business, and who knows where that will lead. A bit like opening a box of chocolates – you never quite know what you’re going to get.

I had, initially, thought this dip a chance to snatch up a few shares. The company is still churning out a good deal of money, you see. In the last quarter, revenue went up 17%, and the profits swelled to a rather portly $38.3 billion. Not bad, not bad at all.

But after a bit more poking and prodding, and a good long think, I’ve changed my tune. I now suspect the price might fall further. It’s not just the AI business causing trouble, oh no. It’s the sheer number of sneaky rivals circling, ready to pounce and nibble away at Microsoft’s profits. A veritable swarm of locusts, I tell you!

About That Backlog (A Mountain of Promises)

On the surface, the demand for Microsoft’s cloud computing looks unstoppable. A roaring success, they say. But appearances can be deceiving, you know. A bit like a magician’s trick.

They boast of a “remaining performance obligation” of $625 billion. A rather grand number, isn’t it? It represents all the work they’ve promised to do, but haven’t actually done yet. A bit like promising a child a pony for Christmas – it sounds lovely, but will it ever actually happen?

But here’s the rub. A huge chunk – 45%, if you please – of this backlog comes from just one customer: OpenAI. Take that away, and the growth slows to a measly 28%. A rather significant difference, wouldn’t you say?

And even then, it’s not all sunshine and roses. Only 25% of this backlog is expected to turn into actual money in the next 12 months. A rather long wait, wouldn’t you agree?

What’s more, despite this mountainous backlog, the growth of their “Azure and other cloud services” is actually slowing down. It grew by 38% last quarter, down from 39% the quarter before. A tiny dip, perhaps, but a dip nonetheless.

And all this is happening while they’re spending a colossal $37.5 billion on capital expenditures – up 66%! They’re throwing money around like confetti, hoping to keep this whole rickety contraption from falling apart. Relying so heavily on one partner, while growth slows, is a rather precarious position to be in, wouldn’t you say?

Shifting Moats and Fierce Competition

Beyond the backlog, Microsoft is facing a bit of a squeeze from its rivals. A proper scrum, if you will.

Amazon (AMZN 0.87%) remains the king of the cloud, and its Amazon Web Services is picking up speed. Their revenue rose 24% last quarter, up from 20% the quarter before. A rather impressive feat, wouldn’t you say?

And then there’s Alphabet (GOOG 0.56%)(GOOGL 0.42%), whose Google Cloud is growing even faster. Their revenue soared 48% last quarter. A proper rocket ship, if you ask me.

But the biggest threat, the really sneaky one, might be a change in the people running these companies. A generational shift, if you will.

Microsoft has long relied on its hold over big businesses. But what will happen when a generation that grew up with Google takes the reins? Alphabet already dominates search and has a rather powerful suite of productivity tools – Google Docs, Sheets, and Slides. Google Chrome and Gmail also have a bigger share of the market than Microsoft’s Edge and Outlook. A slow takeover, perhaps, but a takeover nonetheless.

And then, of course, there’s Alphabet’s Gemini, their newfangled generative AI. A rather clever creation, if I do say so myself.

My Revised Take on Microsoft Stock

At a price-to-earnings ratio of about 25, Microsoft doesn’t look terribly expensive on the surface. But a price like that still requires the company to maintain its dominance, successfully turn its AI investments into profit, and keep its profits rolling in. A tall order, wouldn’t you say?

If Microsoft loses market share to Alphabet, or if its OpenAI deal turns sour, the stock could take a tumble. A rather unpleasant sight, I assure you.

Microsoft is undoubtedly a spectacular business. But the tech landscape is changing rapidly. At a time when tech giants are spending like mad, Microsoft is at risk of losing its edge and, in turn, its power to set prices. A slippery slope, if you ask me.

My new take on the stock? Don’t buy the dip. Unless, of course, the price falls to around 18 to 20, then I might reconsider. But until then, I’d rather keep my pennies safe and sound.

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2026-03-15 05:02