Microsoft Stock: Bullish Bets Pile Up Before September

Microsoft Corp. (NASDAQ: MSFT) just reminded investors why it’s worth its premium. However, the stock’s post-earnings drift could be setting up a bullish September rebound.

The company’s second-quarter earnings report reminded investors that Microsoft continues to be one of the market's most sought-after artificial intelligence (AI) stocks.

But even great stocks take a breather now and then. After gapping up after earnings, MSFT stock has drifted lower. It's hardly a sell-off, but it’s a reminder that even blue-chip technology stocks need market volume.

That volume is about to return. In September, institutional investors can jump back into the market and fine-tune their positions for the end of the year. A look at the August 29 options chain for Microsoft shows a bullish bias that supports a belief that the stock may be getting ready to retest and push past post-earnings highs.

Call-Heavy Positioning Leans Bullish

The Microsoft options chain for August 29 shows several near-term strike prices (e.g., $550, $535, $530, and $540) where call volumes are significantly higher than put volumes. Notably, several of those strikes show net increases in open interest. This is a sign that traders are adding new positions, even at strike prices (e.g., $550) that are out-of-the-money.

Those key calls show that implied volatility is rising, suggesting that traders are willing to pay for more upside exposure. High volume supports this, adding to the bullish sentiment.

In fairness, some of the put options have solid volumes. However, the negative deltas are not aggressively bearish, which suggests protective hedging that can still be interpreted as bullish.

Analysts Are All in on MSFT Stock

Looking at the call options for Microsoft compared to analysts’ price targets, you could argue that investors are being too conservative. Since Microsoft reported earnings on July 30, approximately 18 analysts have raised their price targets and/or upgraded MSFT stock.

The highest of those price targets is from Jefferies, which gives the stock a $675 price target, up from $600. That’s a 30% upside from the stock’s price as of this writing.

Analysts love Microsoft’s fundamentals, which include strong operating cash flow (OCF) and revenue. In the company's fiscal year fourth quarter, the company reported year-over-year OCF growth of over 14%. The 55.79% OCF margin was 75 basis points higher than the 32% mark it reported in FYQ2.

Microsoft reiterated its capital expenditure (CapEx) spending for data centers. However, analysts note that the rate of CapEx growth is slowing and will continue to do so in FY2026. That should boost the company’s free cash flow, which was already up 10% year-over-year in the company’s last quarter.

Why September May Be Volatile for MSFT Stock

September is historically the worst month for stocks. The economy is starting to show more clarity, but the same themes of tariffs, inflation, and interest rates continue to be reasons to expect volatility in September.

That’s why investors may want to pay attention to a potential death cross forming for MSFT stock. In the one-month chart, the 50-day simple moving average (SMA) is close to crossing below the 200-day SMA. That could mean that buy-and-hold investors may get to buy Microsoft stock at a (slight) discount.

Areas to watch include:

• $515 – This aligns with a prior consolidation zone in late July

• $505 – This aligns with the stock’s low in early July pivot that aligns with a mid-summer breakout zone.

• $495 – This aligns with a high-volume support level and the strike with heavy put interest from the options chain.

However, investors may not have much time to react. Death crosses often mark the middle of a down move rather than the start, especially for large-cap companies with strong fundamentals like Microsoft.

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The article "Microsoft Stock: Bullish Bets Pile Up Before September" first appeared on MarketBeat.