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Microsoft (MSFT) has started the new year with a small gain year to date. On Wednesday, shares rose 0.5% to 424.56 ahead of the market holiday to honor the late U.S. President Jimmy Carter. So, is Microsoft stock, which entered 2025 with a market cap towering over $3 trillion, a buy in January?
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This story will assess fundamental, technical and institutional sponsorship criteria on the veteran tech giant and long-term leader of the stock market.
Amid a punishing session for growth stocks on Tuesday, the enterprise software, cloud computing and gaming hardware giant struggled near key technical levels on the chart of Microsoft stock.
A 1.3% loss to 422.37 by the close that session came in mildly below-average volume. However, sellers shoved shares beneath both the 50-day moving average and the long-term 200-day line, which tracks roughly 10 months' worth of price action.
A healthy stock normally shows not only a steady rise, but also a positive slope in both these two moving averages. A rising moving average line means the stock price is trending up. Right now, Microsoft's 50- and 200-day lines have been flatlining.
Microsoft stock began the year below both of these key technical levels, then nearly retook the 50-day line on Monday's stock market rally. But like the Nasdaq and the S&P 500, the megacap tech retreated from a session high of 434.32 to end in the lower half of the session.
That action signaled some traders taking advantage of the moment to sell into strength.
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Microsoft Stock Today
At 424.56, Microsoft is trading less than 10% off its 52-week peak of 468.35. Contrast that with the fact that the Nasdaq composite, currently at 19,450, trades less than 4% below an all-time peak of 20,204.
In 2024, Microsoft's gain of 12% was decent, yet dull when compared with the S&P 500's 23.3% advance.
Therefore, from this perspective, Microsoft stock is not a market leader in the short term.
This is also backed up by the fact that Microsoft holds a lukewarm Relative Strength Rating of 53 on a scale of 1 to 99.
In general, prefer those stocks that hold an RS score of 80 or higher. What does this mean if you do so? The advantage for individual investors: You're focusing on companies that are beating at least 80% of the entire stock market over the past 12 months. Such relative strength is of paramount importance when selecting the best growth stocks today.
According to IBD Stock Checkup, Microsoft stock gets a so-so Composite Rating of 79, also on a scale of 1 to 99. In general, the very best stock market winners begin their massive gains while the Composite Rating is already at a high level, say 90 or higher.
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Mutual Fund Ownership Grows
In terms of institutional ownership, surely it's a widely held name. Yet, MarketSurge data highlights that just 41% of Microsoft stock is owned by mutual funds. Banks own just 2% of the 7.435 billion shares outstanding.
Mutual funds are among the most influential classes of investors who determine the success or failure of individual growth stocks. Why?
With their massive buying power, the best and largest mutual funds often need weeks, even months, to completely fill out a position in a single stock. Their continuous buying ultimately creates positive trading psychology. On a chart, big fund buying helps a potential stock market leader bottom out after a significant correction, rebound back near 52-week or all-time highs, then break out to new highs.
Such activity makes all investors long in the stock happy.
The number of mutual funds owning a piece of Microsoft stock ramped up from 9,643 funds in the first quarter of 2023 to as high as 10,359 at the end of 2024.
Nonetheless, some top mutual funds have trimmed their holdings in Microsoft recently.
Among members of the IBD Mutual Fund Index, MFS Growth Fund (MFEGX), JPMorgan Large Cap Growth (OLGAX) and Fidelity Contrafund (FCNTX) all reduced their positions in the fourth quarter. Together, these three top performers owned a total 54 million shares.
Earnings Picture
Bullish investors in Microsoft stock are hoping that the company's investments in AI technology will help generate continued growth in the bottom line.
Analysts surveyed by FactSet see earnings rising 11% in the current fiscal year ending in June to $13.08 a share, then accelerating 16% in fiscal 2026 to $15.11.
Strong sales are the mother of bountiful earnings. What's the outlook for Mr. Softy?
Revenue is expected to climb 11% in the just-ended December quarter to $68.9 billion, then increase 13% vs. year-ago levels in the following three quarters.
So, the fundamental picture remains rosy for this megacap tech. Smaller companies, based on IBD research, often display growth of high double to triple digits in both earnings and sales before they break out and go on big price advances. Surely, compared to its high-growth days in the late 1980s and 1990s and during parts of the decades that followed, the Redmond, Wash., firm's growth has slowed. Yet the five-year Earnings Stability Factor of 6 on a scale of zero (ultra steady) to 99 (hyper-volatile) bespeaks the company's earnings power.
So while the fundamental and fund ownership metrics look positive, Microsoft has yet to finish a good base from which it can break out to new highs and provide an excellent new buy point.
Therefore, based on IBD rules and investing methodology, until the stock breaches a recent high of 456.16, Microsoft stock is not yet a buy in January.
Please follow Chung on X/Twitter: @saitochung and @IBD_DChung
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