When activist investor Dan Loeb wants to make a statement, he doesn't mess around. His hedge fund Third Point LLC just bumped its Microsoft Corporation (MSFT) stake by 175% in the third quarter of 2025, bringing total holdings to 1.1 million shares from 400,000 the quarter before.

That's a big bet on a company already sporting a massive valuation, and it comes at an interesting moment when Wall Street is split on whether AI will actually deliver the goods.

The Position Build-Up

According to Third Point's recent 13F filings, which show holdings as of September 30, Loeb has been adjusting his Microsoft position pretty actively. The fund held 315,000 shares in Q1 2025, jumped to 600,000 shares in Q4 2024, and had 870,000 shares back in Q3 2024. The latest move to 1.1 million shares represents the biggest position yet.

Microsoft's Recent Performance

The timing makes sense when you look at Microsoft's numbers. In October, the company reported first-quarter FY26 revenue of $77.7 billion, up 18% year-over-year, crushing the consensus estimate of $75.3 billion. Earnings per share came in at $4.13, well above the Street's $3.67 expectation.

Looking ahead, Microsoft expects second-quarter fiscal 2026 revenue between $79.5 billion and $80.6 billion, reflecting 14% to 16% growth. But there's a catch: the company warned about ongoing commercial cloud gross margin pressure, elevated capital expenditures, and capacity constraints that'll persist through the end of the fiscal year.

Meanwhile, Microsoft continues expanding globally. In November, the U.S. reportedly approved the company to ship artificial intelligence chips for use in the United Arab Emirates. The company plans to invest a whopping $15.2 billion in the UAE from 2023 to 2029, including $1.5 billion in G42 equity and over $10 billion dedicated to AI and cloud data centers.

Wall Street's Mixed Signals

Most analysts are staying optimistic. Morgan Stanley analyst Keith Weiss maintained an Overweight rating while raising his price target to $650 from $625. Wells Fargo analyst Michael Turrin went even higher, boosting his target to $700 from $675.

Wedbush analyst Dan Ives is particularly enthusiastic, suggesting Microsoft could join Nvidia in the $5 trillion market cap club. He notes that "it remains clear that FY26 remains the true inflection year of AI growth for Microsoft."

But not everyone's drinking the AI Kool-Aid. Rothschild & Co. analyst Alex Haissl downgraded Microsoft from Buy to Neutral and slashed his price target from $560 to $500. Haissl argues that the generative AI case is losing its shine, and hyperscalers need to be approached more cautiously.

The underlying economics are "far weaker than assumed," Haissl says, and the industry's "trust us — Gen-AI is just like early cloud 1.0" narrative is getting less convincing by the day.

Stock Performance Reality Check

Year-to-date, Microsoft is up 13.2%, which sounds decent until you realize it's underperforming the iShares U.S. Technology ETF (IYW), which gained about 22.20%. The company is also lagging behind competitors like Oracle Corporation (ORCL), which rose roughly 22.1% over the same period.

So while Loeb is loading up, Microsoft shareholders haven't exactly been celebrating. The question now is whether the AI investments will eventually justify the hype or if the skeptics like Haissl will be proven right.