Undeterred by two rating downgrades, Microsoft shares climb against the trend.

(Redmond, Feb 10) — As Wall Street grows increasingly cautious about the disruptive risks artificial intelligence may pose to traditional software business models, Microsoft has seen its stock rating cut for the second time in less than a week. Despite this, the company’s share price moved sharply higher, underscoring a widening divide among investors.

Microsoft shares surged $12.46, or 3.11%, to close at $413.60 on Monday, extending a rebound from the previous session and making it the top gainer among Dow Jones Industrial Average components. Still, the stock remains about 26% below its all-time high of $555.45 set on July 31 last year and is down 14.48% year-to-date, the weakest performer among the “Magnificent Seven” tech stocks.

On Monday, Melius Research downgraded Microsoft from “Buy” to “Hold” and cut its price target to $430. Analyst Ben Reitzes cited rising competitive pressure from AI startup Anthropic, whose new products such as “Cowork” could threaten Microsoft’s core Microsoft 365 franchise.

Profit margins under pressure

Analysts warn that Microsoft may eventually be forced to offer Copilot for free to stay competitive, potentially eroding margins in its highly profitable Productivity and Business Processes segment. At the same time, heavy AI workloads could strain Azure capacity, further limiting profitability.

Earlier, Stifel also downgraded Microsoft to “Hold” and slashed its price target to $392, citing supply-chain constraints and intensifying competition from Google’s Gemini model and Anthropic.

Market data suggest Copilot’s monetization has fallen short of expectations nearly three years after launch, while rivals have rapidly developed comparable tools. This has led investors to question whether AI investments can translate into sustainable cash flow.

A test in the AI arms race

The four largest tech companies are expected to spend around $650 billion in capital expenditures in 2026 alone, with Microsoft’s annual outlay potentially reaching $150 billion. Although roughly 96% of analysts still recommend buying the stock, recent downgrades highlight signs of “AI fatigue,” as investors shift focus from vision-driven narratives toward tangible free cash flow and margin sustainability.