Microsoft Rallies 2% as Michael Burry Eyes Its Earnings to Gauge the Software Sector

After IBM (IBM) delivered a Q2 report that disappointed Wall Street and triggered a historic 25% single-day plunge on July 14, investors are now turning to Microsoft (MSFT) and other software heavyweights to see whether IBM’s troubles are an outlier or a symptom of a broader industry malaise. As of 1:30 p.m. ET on July 16, Microsoft shares were trading at $403.83, up 2.07% from the prior close of $395.63, with an intraday high of $404.48.^{[Investor's Business Daily}]

Michael Burry: IBM’s Plunge May Be an Overreaction — Microsoft’s Report Is the Real Test

Michael Burry, the investor famous for betting against subprime mortgages before the 2008 financial crisis, posted on his Substack on July 15 that IBM’s sharp sell-off could be an overreaction — but that the coming earnings season will reveal the truth. As reported by Business Insider, Burry wrote: “If management’s explanation is corroborated by other companies throughout earnings season, today’s problem looks a lot less severe.”^{[Business Insider}]

Burry specifically called out a slate of IBM peers to watch. “SAP is worth watching. ServiceNow on July 29, Microsoft around the same time. Wipro on July 17, Infosys on July 23, Cognizant and Capgemini in late July/early August. We’ll see if these companies also saw revenue diversion at the end of the quarter,” he wrote.^{[Business Insider}]

IBM’s Q2 report, released July 14, showed revenue and profit both missing Wall Street estimates. CEO Arvind Krishna’s letter to shareholders discussed the company’s struggle to adapt quickly to an AI-driven market. The news sent IBM shares down roughly 25% — the largest single-day percentage drop in the company’s history.^{[Investor's Business Daily}]

The Tech Trade Looks Tired — Earnings Season Is the New Catalyst

Against the backdrop of IBM’s blowup, the broader tech sector’s trajectory is also under scrutiny. Gene Munster, managing partner at Deepwater Asset Management, told CNBC on July 15 that the tech trade has gone “tired” and that investors are counting on earnings to push stocks higher.^[CNBC]

Munster’s view echoes the current market environment. While S&P 500 Q2 earnings expectations are strong, tech stocks — especially AI-related names — are trading at elevated valuations. CNBC reported that Wall Street analysts are raising earnings estimates for a number of stocks that have already fallen in price, giving them more attractive valuations heading into Q2 earnings season.^[CNBC]

Nicole Inui, head of Americas equity strategy at HSBC Global Research, said expectations for Q2 are high but concentrated in sectors with relatively strong earnings visibility. She sees opportunities beyond the AI trade, including companies that could benefit from tariff rebates and spending tied to the FIFA World Cup. According to CNBC, the market expects S&P 500 Q2 EPS to grow 22% year-over-year — the strongest pace since the post-pandemic period.^[CNBC]

Microsoft Earnings Loom — AI and Cloud Performance in the Spotlight

As one of the world’s most valuable software companies, Microsoft’s earnings have always been a bellwether. Burry singled it out as a key name to watch in determining whether IBM’s problems are industry-wide. The market expects Microsoft’s upcoming report to highlight the commercialization of its AI business — particularly through its OpenAI partnership and Copilot products — as well as growth in its Azure cloud division.

Microsoft’s rally in Tuesday trading partly reflects optimism about its upcoming results. But IBM’s crash has also put the entire software sector on notice: if other companies report similar revenue diversion or AI adoption struggles, a broader sell-off could follow. Conversely, a strong showing from Microsoft and other giants could quickly calm the market’s nerves.

Analyst View: Rising Earnings Estimates, Falling Valuations

CNBC further reported that in the run-up to earnings season, some stocks are seeing their earnings estimates rise while their valuations fall — creating potential entry points for investors. HSBC’s Nicole Inui said that while market expectations are concentrated, structural opportunities remain.^[CNBC]

Meanwhile, Investor's Business Daily noted in its July 16 market report that tech futures were rising with the Nasdaq at a key level, while oil prices pushed above $80 a barrel. The report also mentioned ASML and Morgan Stanley, but did not provide specific analysis on Microsoft.^{[Investor's Business Daily}]

Microsoft has not yet officially announced its earnings date, but historically it reports in late July. Burry noted that Microsoft’s report would come “around the same time” as ServiceNow’s on July 29. The market will be watching closely to see whether Microsoft can continue to grow revenue from AI and whether its cloud business faces any of the same competitive pressures that hit IBM.

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