MORGAN STANLEY analysts labeled Microsoft the most under-owned megacap stock Tuesday, spotlighting heavy institutional underweighting amid a sharp share price drop. The stock has fallen 18% year-to-date and sits 14% below its one-month high, now around $397.

Microsoft plunged into bear market territory after its fiscal Q2 earnings on January 28 disappointed investors, even as results beat Wall Street estimates. Revenue reached $81.27 billion, topping forecasts of $80.4 billion. Adjusted earnings came in at $4.14 per share, surpassing expectations of $3.92.

Microsoft Cloud revenue climbed 26% to $51.5 billion. The Intelligent Cloud segment, which includes Azure, jumped 29% year-over-year to $32.9 billion. CEO Satya Nadella said during the earnings call, “We are only at the beginning phases of AI diffusion and already Microsoft has built an AI business that is larger than some of our biggest franchises.”

Microsoft 365 Commercial Cloud revenue rose 17%. The consumer version grew 29%. Dynamics revenue increased 19%. Those figures point to strong demand. Yet shares dropped 11% from $543.47 before fiscal Q1 earnings to $482.52 by the Q2 filing. They sit 17% lower than the close before the latest report.

Analysts remain upbeat. Consensus shows 57 buy or strong buy ratings, one hold, and zero sells. The average price target stands at $596, suggesting 50% upside from current levels.

Investors fixate on risks beneath the surface. The More Personal Computing segment fell 3% year-over-year. Heavy spending on AI infrastructure raises doubts about near-term payoffs. Some fear AI could disrupt legacy products like Excel, forcing pricing pressure on cash cows within two years.

Azure growth demands massive compute investments to stay competitive. That shift pulls resources from other areas, potentially slowing cloud expansion. Bears worry core franchises will decelerate as AI advances erode their edge.

Microsoft countered growth concerns with a fresh announcement. The company pledged $50 billion by decade’s end to expand AI access in the Global South. The investment targets India, Africa, Southeast Asia, and Latin America through new infrastructure, multilingual AI tools, and local partnerships. Officials said the move addresses fears of overreliance on saturated Western markets, unlocking billions of new users.

Morgan Stanley’s call hinges on positioning. Institutional ownership hovers at 76.5%, leaving room for managers to rotate in. Underweight funds often buy aggressively on positive news, analysts noted.

The stock trades at its cheapest valuation in years. Microsoft boasts a $2.95 trillion market cap, 39% profit margins, and 34.4% return on equity. Morgan Stanley argues the negatives are already baked in, setting up potential gains as AI returns clarify and revenue growth stabilizes.

Online chatter captures the split views. A Reddit thread titled “Why are people so bearish on MSFT?” drew 394 upvotes and 374 comments, according to site data. Broader selling pressure hits software stocks amid macro fears.