Microsoft's AI Gains Can Push the Stock Higher. That's Good News for Software Peers. -- Barrons.com

By Doug Busch

Microsoft is no longer just waiting for the artificial-intelligence payoff; it is actively collecting it. And as Microsoft goes, so goes the software sector.

Following a well-received July earnings report, the stock has gained steady momentum, avoiding a losing streak longer than three days since early June. Since the July report, the company's cloud-computing platform, Azure, has surpassed $100 billion in annual revenue for the first time.

Wall Street is taking notice. In a clear sign of shifting sentiment, Stifel upgraded its stock rating last week to Buy with a $575 price target, reversing its February downgrade.

Microsoft's rebound carries weight for the broader software sector. The tech giant is the third-largest holding in the iShares Expanded Tech-Software Sector exchange-traded fund (ticker: IGV), accounting for roughly 9% of the fund, just behind Palantir and Palo Alto Networks. Beyond technology, the company's footprint ripples across the market: Microsoft is the world's fourth-largest company by market capitalization and commands more than 5% of the S&P 500 index. A move in Microsoft stock moves the index.

Although technology's two core subsectors, software and semiconductors, have taken vastly different routes in 2026, both are positioning for a strong finish to the year. The VanEck Semiconductor ETF (SMH) has surged 68% over the past year, successfully rebounding from a slump that lasted from late June to the end of July. Meanwhile, the IGV sits roughly flat on the year, working to regain ground after a rocky start that included a 3% first-day drop on January 2, and a bearish death cross two weeks later.

Despite the turbulence, the IGV has mounted an impressive recovery from its April low of $73.93. While the path higher has not been a straight line, the trend remains intact. Let's examine Microsoft's daily and monthly charts to see if the tech behemoth can continue leading the broader software space higher.

On the daily, Microsoft's ratio chart against the S&P 500 broke above a six-month downtrend in early August. Softness was originally triggered by a bearish island reversal on October 30, 2025, with a 3% gap down. That shift began a $200 drawdown, pulling shares all the way back to the lows of a recent cup base on June 25. Yet another bearish island reversal at the downward sloping 200 day simple moving average completed with a 4% gap down on June 2.

The stock reclaimed its broader bullish structure on August 3, officially taking out the cup base pattern's pivot of $466.42. Building on that momentum, it cleared a bull flag pivot of $513 on Friday. Remarkably, the stock pushed through this key level while shrugging off a cluster of indecisive and bearish candlestick patterns, including dojis, a shooting star, a bearish engulfing, and a harami.

Looking ahead, the stock could reach $649 by mid-2027, a 26% gain from current levels. Remain bullish above $485.

Microsoft was trading around $508 Monday.

Turning to the monthly timeframe, betting against Microsoft has proven to be a losing trade over the past decade, as the ratio chart highlights. Central to this bull market is the 50-month simple moving average (SMA), which has consistently served as a high conviction floor. Between October 2022 and January 2023, price action bounced off this level via a doji and bullish hammer, sparking a $255 rally to the July 2024 peak while breaking above a $349.77 cup base pivot.

History repeated itself in April 2025, when another hammer at the 50-month SMA ignited a swift $250 rally in just four months. Most recently, shares shares tested this key moving average again between March and July, successfully snapping an unprecedented six-month losing streak. Amazingly, the stock showed zero downside follow-through after a sharp 17% drop in June. Instead, buyers aggressively absorbed supply, powering a 25% surge the very next month.

With the 50-month SMA once again holding this summer and historic cycles confirming strong buyer defense at these levels, the chart remains exceptionally strong. From a long-term perspective, this trajectory sets up a potential rally toward $750 by year-end 2027.

Doug Busch is the senior technical analyst at Barron's Investor Circle. His technical view is added to stock picks, including those published exclusively for Investor Circle readers. A glossary of technical terms is updated regularly with new entries.

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

September 28, 2026 14:16 ET (18:16 GMT)