Why has Microsoft's stock price lagged behind its competitors this year? The top technology trader at Goldman Sachs found one reason: Tesla is too "money-sucking."

Microsoft's stock price has risen about 12% since the beginning of this year, lagging behind other tech giants. Among the "Magnificent Seven" (Mag 7) U.S. tech stocks, not to mention Nvidia's nearly 200% surge this year, even Apple, Google's parent company Alphabet, Amazon, and Meta have seen increases of at least about 20%.

Why has Microsoft lagged this year? Goldman Sachs' top tech trader Peter Callahan believes there are several reasons, including Tesla's significant capital absorption. They are:

• A lack of positive earnings per share (EPS) revisions this year. Microsoft's EPS revisions have stagnated over the past year.
• The growth of Microsoft's Azure cloud services differs from its peers. Compared to Google Cloud, Azure's growth is slowing, while Oracle Cloud is accelerating compared to Azure, which can only be considered stable.
• The market perceives that the maturity of the AI "application" narrative is slower, such as Office Copilot, Bing improvements, and AI Agents.
• Unresolved capital expenditure progress, unable to "digest" profit headwinds.
• Debates about foundational models/large language models (LLM) (Microsoft's partnership with OpenAI, comparisons with Meta's Llama and Google's Gemini models).
• Investors are allocating funds to other giants.

Regarding the last point mentioned, Callahan noted that third-quarter holdings show that mutual funds are underweight in the Mag 7 by 806 basis points, exceeding the 671 basis points in the second quarter. Among the Mag 7, four stocks are among the top 20 for reductions, namely Microsoft, Alphabet, Meta, and Nvidia, while Tesla is the most increased stock.

Looking ahead, what factors could change the narrative surrounding Microsoft? Goldman Sachs' trading department believes there are several:

1. Azure performs excellently (e.g., achieving stable or accelerated growth in the second half of the year).
2. Demonstrating operational leverage/increasing EPS revision capabilities.
3. Clear signs of growth momentum in generative AI at the application layer.
4. Other blue-chip tech stocks losing favor (e.g., capital expenditure/operational issues or e-commerce/advertising anxieties).

For the third point above, Callahan cited a review from Goldman Sachs analyst Kash Rangan's report on this Tuesday's Microsoft Ignite Conference. The report states that since Microsoft's investment in OpenAI has largely been factored into the consensus EPS expectations for fiscal year 2026, Goldman believes that Microsoft's next potential catalyst is the re-acceleration of Azure's growth starting in the third quarter of fiscal year 2025, which is the first quarter of next yearThe report stated that Goldman Sachs believes Microsoft's new platform Azure AI Foundry (preview version), the upcoming AI Agent Service, and the Copilot Studio, which will be applied by over 100,000 organizations, are all promoting customer adoption of Azure AI. The usage of Azure OpenAI Services has doubled within six months, indicating that customers are looking for real use cases to leverage these technologies.

The report mentioned that the significant improvement in Microsoft 365 Copilot's performance has led Goldman Sachs to believe that Copilot could evolve into a key generative AI use case, with its response speed increasing twofold and response satisfaction tripling. Microsoft's significantly enhanced features, such as Copilot Actions, Pages, Agentic AI, and expanded use cases in customer service, manufacturing, and other areas are rapidly entering the market, which could accelerate value realization and impact Microsoft's revenue.

The report also noted Microsoft's construction of an AI ecosystem, including cost management (using Copilot Analytics, GA, and other products), enterprise control (AI model governance), and security. This ecosystem's development could facilitate the easier deployment of Copilot across Microsoft 365's more than 400 million users (primarily enterprises)