There's no end in sight to Microsoft's historic stock slump.
Shares are pacing towards their worst start to a year since the dot-com crash. Heading into Thursday's session, Microsoft stock had fallen more than 24% in 2026, putting it on track for its steepest first-half decline since a nearly 32% drop in 2000, according to Dow Jones Market Data.
For much of its history, Microsoft was best known as the pioneer behind the Windows operating system and wildly popular Office software. But as the company increasingly embraced artificial intelligence along with the rest of the tech industry, this new focus has created problems.
Microsoft seemed like an obvious early winner in AI: The company became OpenAI's first major corporate backer through a $1 billion investment in 2019, aligning itself early on with one of the industry's juggernauts. At the same time, Microsoft moved aggressively to embed the technology across its own cloud and software businesses.
But issues quickly arose. First came the pushback from users themselves, who perceived the integration of AI features -- particularly Microsoft's Copilot assistant -- as forced. Microsoft has since softened its approach, dialing back the branding of some AI tools and even discontinuing free, built-in Copilot access in certain Office applications.
Lately, attention has centered on the massive capital expenditures driving Microsoft's AI push. It isn't the only company under pressure -- sector peers Meta Platforms and Alphabet-owned Google have faced similar scrutiny from investors.
As Microsoft and other hyperscalers increasingly issue debt to support their spending instead of using free cash flow, investor concerns are beginning to weigh on their stock prices. Even though Microsoft's latest quarterly print signaled growing traction for Azure, its AI-forward cloud platform, this detail was overshadowed by lofty capex guidance that drove shares down nearly 4% in the wake of the report.
The stock fell another 3.7% on Thursday as a broad tech selloff resumed, fueled by fears of heavy AI spending. Micron's fiscal third-quarter earnings, released after the bell Wednesday, offered only a temporary reprieve that failed to stop the slide.
Microsoft has doubled down on its AI strategy despite these clear anxieties. Earlier this month, the company unveiled its own in-house foundational models to put more distance between itself and OpenAI. The companies remain partners, though the nature of their relationship has shifted over time; in April, they jointly announced that OpenAI would be allowed to "serve all its products to customers across any cloud provider," rather than just Azure.
The costs of powering AI processors, generating electricity, and building data centers continue to swell. Microsoft's capex has steadily ratcheted higher, climbing from $24 billion in fiscal 2021 to $88 billion in 2025. The company anticipates spending will balloon even further in 2026 to a projected $190 billion.
It's clear Microsoft has no intention of retreating, even as the market signals its exhaustion. But until these initiatives translate into sufficient profits, the tech giant's historic market hangover is unlikely to clear.
Comments