It’s been a terrible week for Microsoft Corporation (NASDAQ: MSFT) shareholders. As of the close on Apr. 21, MSFT stock has dropped more than 8.6% over the past five trading days. One reason is concern over OpenAI’s plans to acquire the AI company Windsurf for $3 billion.
[content-module:CompanyOverview|NASDAQ: MSFT]Although the deal is unlikely to directly impact Microsoft, investors could be selling as an expression of concern that OpenAI’s ventures could eat away at Microsoft’s profits. The irony is that Microsoft stock jumped sharply in June 2024 when Microsoft’s partnership with OpenAI was first announced.
But investors have started to question that investment. This is particularly true as OpenAI is choosing to make an external acquisition rather than using that money to enhance Microsoft’s own AI technology. There must be some concern that this won’t be OpenAI’s last acquisition, considering the company recently closed a $40 billion funding round, the largest on record for a company of its size.
However, the news shouldn’t completely surprise investors. As recently as January 2025, OpenAI published its blueprint for U.S. AI infrastructure. In the document, it stated that it was critical for U.S. companies to invest in AI projects to stay ahead of China. And in a blog post in January, Microsoft president Brad Smith recommended new public/private partnerships to fund large-scale AI infrastructure projects.
Why Windsurf?
Windsurf is the world’s most advanced AI coding assistant. The company’s revolutionary development environment combines AI agents and co-pilots to enhance coding efficiency and productivity.
Windsurf directly competes with Cursor, another pure-play AI coding assistant. It also competes with other AI coding features from Anthropic, which recently received a $2 billion investment from Alphabet Inc. (NASDAQ: GOOGL) and, ironically, Microsoft and OpenAI itself. This puts the acquisition in the category of industry consolidation, which was likely to happen anyway. However, the timing, which came about two weeks before Microsoft reports earnings on Apr. 30, is less than ideal.
Is Microsoft a Defensive Stock? Analysts Say Yes
After this recent downturn, MSFT stock is down approximately 12% in 2025. That’s not good news, but the stock is still outperforming many technology stocks.
A key reason is that Microsoft generates the majority of its revenue via its Azure cloud business. That means it’s not as susceptible to tariff headwinds. And most companies are not going to cut their cloud expenses even if the economic slowdown turns into an actual recession.
[content-module:Forecast|NASDAQ: MSFT]That’s why investors continue to believe that Microsoft may be a strong candidate to buy on the dip. But is the worst over? It’s hard to say. One reason analysts have been lowering their price targets for MSFT stock is the belief that the economy may slip into a recession. In that scenario, it’s easy to believe there will be a cutback in capital spending by Microsoft’s enterprise customers.
However, “lower” price targets are still relative, especially when they remain well above the current trading level. The Microsoft analyst forecasts on MarketBeat give MSFT stock a Moderate Buy rating with a consensus price target of $497.63, which gives the stock a 39% upside from its closing price on Apr. 21.
MSFT stock is retesting its 52-week low around $350. This is coming at the same time as the stock’s 50-day simple moving average (SMA) continues to move lower. This combination suggests the stock could have further to fall. In fact, some technicians believe there’s a case to be made for the stock to test the $300 level.
At that point, investors have to look at Microsoft as a solid buy. As of Apr. 21, Microsoft’s P/E ratio was around 28x. That’s already below the premium that investors are still paying for many Magnificent Seven stocks. It’s also about 14% below the company’s average trailing twelve-month (TTM) average.
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