Microsoft stock slumped 12% on Thursday, part of a broader software industry decline driven by investor skepticism regarding the near-term return on substantial artificial intelligence expenditures. The company is on track for its worst trading day since March 2020, having seen roughly $400 billion wiped from its market capitalization in the session.
This market reaction followed the company’s latest earnings report, which indicated a deceleration in growth for its crucial Azure cloud computing platform. Capital expenditures reached a record $37.5 billion in the second quarter, a 66% increase year-over-year, according to the report.
Microsoft projected Azure growth to stabilize between 37% and 38% for the coming quarter, following a slowdown in the preceding three months, partly attributed to constraints in securing advanced AI chips. Analysts noted that Wall Street desired faster monetization of AI assets rather than increased spending on data center buildouts.
Wedbush Securities analyst Dan Ives stated in a released note that Microsoft requires focus on its data center expansion as more clients adopt AI pathways, framing 2026 as a critical inflection point for the company's AI strategy. This spending is viewed as necessary for multi-year growth, despite immediate investor impatience.
Further pressure emerged from disclosures concerning OpenAI, Microsoft’s primary AI partner, which reportedly accounts for 45% of the company’s cloud backlog. Concerns exist that up to $280 billion could be jeopardized if the unprofitable startup loses competitive ground in the rapidly evolving AI race.
Investment firm Paleo Leon’s managing director, John Praveen, told Reuters that the market reaction reflected genuine apprehension that extensive AI investments might negatively impact software companies’ immediate profitability. This sentiment is compounded by reports that Microsoft is planning an additional $10 billion investment into the heavily indebted OpenAI.
Market analysts also highlighted concentration risk associated with Microsoft’s tight relationship with OpenAI. Zavier Wong of eToro noted that while these deep ties secure enterprise AI leadership, they also introduce significant dependency risk should the startup falter against rivals like Google's Gemini 3 and Anthropic's offerings.
The broader tech ecosystem felt the effects, with stocks of Nvidia and Amazon, both reportedly increasing their own investments in OpenAI, trading lower during midday activity on Thursday. This suggests a moment of widespread reassessment regarding the current valuation of frontier AI development.
