Yesterday’s earnings reports from Alphabet and Microsoft have garnered positive reactions from shareholders and the entire AI sector. Microsoft revealed earnings of $2.94 per share and a 17% revenue growth, both surpassing consensus estimates of $2.83 and 14.46%, respectively. The cloud business saw a remarkable 21% growth, with Azure contributing significantly with a 31% increase. 

Microsoft’s strategy of integrating AI into its products appears to be successful across servers and other products. The demand for AI has been steadily increasing, with more companies incorporating AI into their operations. Microsoft’s investments in AI are expected to drive further revenue growth in the upcoming years. 

(MSFT Daily Chart) 

After the earnings release, MSFT’s share price increased by nearly 4% in the overnight market, reaching $414. Although the short-term uptrend was broken, the trend from January 2023 is still intact, and today’s jump will align with that trendline. Microsoft bulls will likely attempt to recapture the 50-day moving average today. Additionally, today’s PCE data might influence pricing. 

There is some downside pressure on the overall stock market due to persistent inflation and trimmed rate cut expectations, which might temporarily slow the upward momentum for Microsoft as well. However, the upside potential remains strong, especially with the growing AI business. If the current headwinds fail to impede the advance and the previous top near $432 is breached, MSFT might target $460 or even $490 in the coming months. Nevertheless, traders should exercise caution until the current top is surpassed. Until then, as long as the yellow trendline holds, downward movements might present buying opportunities below $400.