Microsoft Corporation (NASDAQ: MSFT) continues to be a bellwether of the technology sector. MSFT stock is up about 20% in 2025, outperforming the S&P 500 and showing resilience even as the broader market remains volatile.
This isn’t just an AI story, nor can it simply be explained by the growth in its Azure cloud computing business. In fact, one of the best explanations for MSFT stock's performance doesn’t come from looking at how high it goes but how low it goes.
Or in the case of Microsoft, why doesn't it go lower? The explanation is strong institutional ownership that provides a stabilizing force that makes Microsoft a forever stock.
Strong Institutional Holdings Stabilize MSFT Stock
Approximately 71% of Microsoft stock is held by institutions. But what does that mean? The term institutional investors accounts for all the pension funds, mutual funds, and exchange-traded funds (ETFs) that include MSFT stock.
Being included in these funds makes MSFT stock less prone to market volatility (i.e., extreme swings in either direction) that impact small and/or speculative companies. In fact, when these more volatile stocks sell off, investors frequently turn to Microsoft because its large institutional base provides a stabilizing buffer.
Even when these funds do their quarterly rebalancing, MSFT stock continues to hold its value. The funds simply can’t afford not to hold the stock in their portfolios.
Why Fund Managers Keep Buying Microsoft
But why is Microsoft attractive to these large investors? Consider that fund managers are paid for performance.
That puts a risk premium into every stock they select. They’re not likely to chase the meme stocks popular with day traders. Instead, they look for specific qualities, such as:
- Balance sheet strength: Cash is king for institutional investors. With over $80 billion in cash and low net debt, Microsoft has financial flexibility that allows it to weather market downturns.
- Recurring revenues: Office 365 subscriptions, LinkedIn advertising, Xbox gaming, and Azure cloud services provide a predictable and growing cash flow.
- AI leadership: Microsoft’s partnership with OpenAI and its integration of AI tools like Copilot across its enterprise products position the company to benefit from one of the most important tech trends of the decade.
- Defensive growth profile: Thanks to its dividend and buyback program, institutions can justify MSFT as both a growth stock and a “bond-like” holding, making it appealing in uncertain markets.
How Institutional Demand Creates a Stock Floor
Here’s something else to consider about institutional ownership of MSFT stock. It’s one thing for actively managed funds to choose Microsoft. However, many passive funds that track key indexes such as the S&P 500 and NASDAQ 100 have no choice but to hold the stock.
One key support for the entire market is the money that passively flows into it from employees’ 401(k) programs. That means MSFT stock benefits from significant inflows every two weeks, regardless of its price.
Institutional buying is also why investors should take the company’s valuation with a grain of salt. At around 37x forward earnings, MSFT stock trades at a premium to its historic average, but institutions are not only willing, they have no choice but to pay that premium for the growth offered by the company.
That growth comes with a reliable dividend and ongoing share repurchases to reinforce the stock’s downside protection.
Potential Risks and Market Dips for MSFT Investors
All stocks carry some level of risk, and Microsoft is no different. At any given moment, there could be a “sell the news moment,” such as the company’s earnings report. If the company reports lighter-than-expected guidance, it could cause some investors to sell their shares.
Institutions can sell and buy, which can cause the stock to drop. One example occurred at the beginning of 2025. MSFT stock dropped from around $453 to around $350. However, investors who bought that dip were rewarded with a gain of over 20%.
Where Should You Invest $1,000 Right Now?
Before you make your next trade, you'll want to hear this.
MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis.
Our team has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and none of the big name stocks were on the list.
They believe these five stocks are the five best companies for investors to buy now...
The article "Institutional Buying Sets a High Floor for Microsoft Stock" first appeared on MarketBeat.
