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Microsoft (NASDAQ:MSFT) is hitting a rough patch as AI hype struggles to translate into real earnings. The stock has slid 18% from its July peak, with investors growing impatient over when its massive AI investmentsparticularly its partnership with OpenAIwill start paying off. Meanwhile, fresh competition from China's DeepSeek, which claims to have a more efficient AI model, is adding another layer of uncertainty. While Microsoft's long-term AI potential remains intact, the near-term picture is murkier, especially with capital expenditures ballooning to $80 billion this fiscal year.
At the same time, Microsoft is closing the book on Skype, once the go-to video calling platform of the early 2000s. The move isn't surprisingSkype has been fading for years, overshadowed by Zoom (NASDAQ:ZM), WhatsApp, and Microsoft's own Teams. It's a classic case of what happens when tech companies fail to evolve fast enough. Nokia and BlackBerry (NYSE:BB) learned this lesson the hard way, and now Skype is another casualty. Microsoft, however, isn't looking back. Its shift toward AI and enterprise solutions is clear, even if investors are still waiting for the big payoff.
Despite the turbulence, Wall Street isn't abandoning Microsoft. The stock now trades at its lowest forward earnings multiple in nearly two years, making it a tempting entry point for long-term investors. More than 90% of analysts still rate it a buy, expecting revenue and earnings growth to accelerate in the coming years. Microsoft has been through rough patches before and always found a way to come out stronger. The real question is whether AI will deliver fast enough to justify its spending spreeor if investors will have to wait longer than they'd like.
This article first appeared on GuruFocus.