Microsoft Stock Plunges 12% in Worst Day Since March 2020
Microsoft Corporation witnessed a dramatic market downturn as its shares plummeted approximately 12% in intraday trading, marking the software giant's most severe single-day decline since the market turmoil of March 2020. This significant drop resulted in an astonishing $424 billion erosion of market capitalization, representing one of the largest single-day valuation losses in stock market history.
Historical Context of Microsoft's Market Decline
According to financial data analyzed by Bloomberg, this 12% slide ranks among the most substantial percentage declines in Microsoft's trading history since its initial public offering in 1986. The company has experienced only a handful of days with more severe drops, including notable market events such as Black Monday in 1987, the dot-com bubble burst, and the COVID-19 pandemic-induced selloff in 2020. The only larger one-day valuation destruction recorded in stock market history remains Nvidia's $593 billion rout in January last year, which followed the launch of DeepSeek's low-cost artificial intelligence model.
Investor Concerns Driving the Selloff
The dramatic stock decline reflects growing investor apprehension about Microsoft's ability to justify its substantial recent spending plans, particularly in artificial intelligence infrastructure. Financial analysts point to several key factors contributing to the market reaction:
- Cloud Growth Slowdown: Microsoft's closely monitored Azure cloud-computing unit showed decelerating growth compared to the previous quarter, raising questions about enterprise AI demand.
- Capital Expenditure Surge: The company reported a 66% increase in capital expenditures during its most recent quarter, reaching a record $37.5 billion as Microsoft supports demand for its cloud and AI segments.
- Return on Investment Concerns: Investors increasingly seek evidence that massive AI investments are generating substantial returns, creating pressure on companies like Microsoft to demonstrate tangible benefits from their spending.
Analyst Perspectives on Microsoft's Valuation
Market strategists have expressed concerns about Microsoft's current valuation relative to its AI investment returns. Matthew Maley, Chief Market Strategist at Miller Tabak + Co, told Bloomberg that "since it is becoming even more evident that Microsoft is not going to garner a strong ROI from their massive AI investment, their shares need to be revalued back down to a level that is more consistent with its historic fair value."
The company has also acknowledged operational challenges, particularly regarding compute capacity constraints where demand continues to outpace supply. In internal communications, Microsoft finance chief Amy Hood revealed that Azure would have grown 40% if the company had allocated all new graphics processing unit chips from the first two quarters exclusively to its Azure business.
OpenAI Connection and Future Outlook
Investor concerns extend beyond Microsoft's direct operations to include its significant partnership with OpenAI. Microsoft's demand backlog reportedly surged to $625 billion, representing a 110% increase that includes a substantial $250 billion cloud agreement with OpenAI. The ChatGPT creator accounted for 45% of Microsoft's commercial remaining performance obligations during the period.
Analysts at Evercore ISI noted that "concerns about OpenAI's ability to meet funding commitments" likely contributed to the post-earnings stock decline, though they characterized the market sentiment as potentially "overblown." Microsoft continues to balance supply constraints with product innovation, focusing on growing first-party AI usage in services like GitHub Copilot and M365 Copilot while addressing the imbalance between incoming supply and growing Azure demand.
The software giant has issued soft guidance on operating margin for the fiscal third quarter, adding to investor uncertainty about the company's near-term financial performance amidst its substantial AI infrastructure investments.
