Xbox’s 100-Day Reset and the Fed’s Rate Call: Microsoft Investors Weigh Competing Forces

Microsoft shares near 29% off October high despite AI revenue surging 123%; Fed meeting and Xbox losses weigh as analysts see 43% upside.

Microsoft shares limped into the weekend at €337.85, barely changed on the session but nursing a weekly loss of nearly 7%. The year-to-date decline now stands at more than 16%, with the stock trading roughly 29% below its October peak of €478.10. For a company that just posted double-digit revenue growth and triple-digit AI gains, the market’s mood is strikingly cautious.

The immediate source of unease is monetary policy. The Federal Reserve meets on Tuesday and Wednesday, and with US inflation running at 4.2% in May, rate-sensitive tech giants like Microsoft are bracing for potential hawkish signals. Compounding the tension, US markets will close early on Friday for Juneteenth, thinning liquidity just as traders digest the Fed’s decision.

Beneath the macro jitters, two distinct narratives are playing out inside the company. The cloud and artificial intelligence businesses are firing on all cylinders. In the third fiscal quarter of 2026, total revenue climbed 18% to $82.9 billion, Azure accelerated 40%, and AI revenue vaulted past $37 billion — a 123% surge from a year earlier. Microsoft 365 Copilot now has more than 20 million paying users. Yet the cost of that transformation is staggering: capital expenditure on AI infrastructure hit $30.88 billion in the quarter, up 84% year-over-year. Investors are watching for signs that those billions will eventually translate into stable margins.

On the other side of the ledger sits the Xbox division, which continues to act as a drag. Chief executive Satya Nadella recently acknowledged that gaming has been a net drain on Microsoft’s finances for 25 years — subsidised content and hardware to the tune of more than $20 billion over the past five years alone, while annual revenue from the segment fell by nearly $500 million over the same period. In a podcast, Nadella bluntly noted that gaming content generates more money on YouTube than inside Microsoft’s own ecosystem.

Enter Asha Sharma, Microsoft’s new head of Xbox. Alongside content chief Matt Booty, she has launched what the pair internally called a “100-day reset,” declaring flatly that the current trajectory “cannot continue.” The division is on course for a margin of roughly 3% — a level that is simply too thin for a company of Microsoft’s scale. Whether the reset will succeed remains to be seen, but the stakes are high.

Technically, the stock is showing signs of exhaustion rather than a clear reversal. The relative strength index stands at 38.2, edging toward oversold territory. But the share price remains below both its 50-day moving average of €352.84 and its 200-day average of €389.03 — a configuration that typically warns of ongoing weakness. The latter level now also acts as a formidable resistance ceiling.

Analysts, however, are broadly undeterred. Of the 47 covering the stock, 41 rate it a buy, and the average price target of $561.20 implies upside of more than 43% from current levels. Short-term catalysts are sparse: the Fed decision on June 17 will inject volatility, and the next quarterly dividend of $0.91 per share is payable on September 10, with an ex-dividend date of August 20.

On the operational front, Microsoft has quietly addressed one of the biggest regulatory hurdles facing its AI ambitions. The company is rolling out so-called “flex routing” for its Copilot service in Europe, keeping customer data within the region’s borders. The move balances surging demand for compute capacity with the EU’s strict data protection rules — a pragmatic step that removes one potential brake on adoption, even if it does little to calm the immediate tension over rates or the lingering questions in Redmond’s gaming division.