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Asset Watch

Add Microsoft to your buy list?

Tuesday, February 3, 2025

 

After the DeepSeek drama hammered AI stocks, some of the most popular U.S. names came under heavy pressure. And now, with U.S. President Donald Trump kicking off a potential trade war by slapping tariffs on Mexico, Canada, and China (and possibly the EU), the outlook for Big Tech has become increasingly gloomy.

However, for those willing to extend their trading time horizons, could Microsoft make sense in the days ahead?

Quality matters

While Microsoft sunk by more than 6% following its disappointing earnings release, UBS expects the stock’s strong fundamentals to shine in the months ahead. The team wrote on Jan. 30:

“With long-term fundamentals intact, we recommend taking advantage of extreme volatility through structured strategies or by buying the dip in quality AI stocks, including Big Tech….  With a strong AI outlook from both Microsoft and Meta, we keep our estimates intact despite the recent uncertainty created by the initial success of low-cost models like DeepSeek.”

Thus, while Microsoft shares are largely flat over the last 12 months, it could be a comeback candidate once the tariff drama recedes.

Potential support

While heightened volatility could create some wild swings over the next few days and beyond, Microsoft’s monthly chart highlights how long-term support is near $398. The level coincides with several highs and lows over the last year, which may provide a foundation amid the economic uncertainty.

Key trend indicators

Aiding the price support, the 10 and 20-month moving averages are crucial. If you analyse the left side of the chart, you can see how both MAs created the perfect trend backdrop and acted as long-term support during corrections. They even became resistance during the 2022 bear market.

Consequently, with the 10-month MA near $418 and the 20-month MA near $391, the latter combined with price support near $398 could be a solid range to build a position.

 

Take a long-term approach

Since the analysis focuses on the monthly chart, it’s important to remember that long wicks can form throughout the period. In other words, Microsoft could plunge below $398 or $391 on a single day and still rally back to end February above both levels.

As a result, while daily sell-offs may seem violent or bearish, zooming out helps smooth out the volatility, and focusing on ~30 days at a time may be better than one.


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