Microsoft's earnings report triggers sell-off: intraday decline reaches 12%, market value at one point evaporates by $430 billion

Microsoft disclosed a sharp surge in data center spending in its latest financial report, and the stock fell more than 12% during the following trading day, evaporating $430 billion in market value—marking the second largest single-day market value loss on record. This news reignited market concerns over Silicon Valley’s massive investments in AI infrastructure and dragged Wall Street overall down.

Microsoft’s stock dropped more than 12% intraday Wednesday, marking the largest intraday decline since March 2020 and dragging down the broader market. Ultimately, Microsoft closed down 9.99% on Wednesday at $433.50. Furthermore, as of early 2026, performance has been nearly flat before Wednesday’s close.

Previously, the company disclosed that data center spending had increased 66% year-over-year, bringing capital expenditure for the three months ending December to $37.5 billion. Microsoft also reported that cloud business growth was below market expectations; however, adjusted net profit and revenue both beat analyst forecasts.

In US stock market history, the only time a single-day market value loss exceeded Microsoft’s was last year when Nvidia’s value plunged by $593 billion after DeepSeek launched a low-cost AI model. According to compiled media data, the size of Microsoft’s market value shrinkage this time exceeds the market value of about 96% of S&P 500 constituents and is also greater than the entire market capitalization of countries such as Finland, Vietnam, and Poland.

The approximately 12% drop in Microsoft’s share price ranks among the worst declines in its history. Since its IPO in 1986, Microsoft stock has only experienced larger drops on a few occasions, including “Black Monday” in 1987, the dot-com bubble era, and the peak of market panic during the COVID-19 outbreak in 2020.

The chill also spread to other tech companies. Peers including Alphabet and Nvidia at one point each lost over $100 billion in market value on Thursday.

Excessive Spending

This sell-off occurred amid growing investor skepticism about whether the hundreds of billions being invested by the big tech companies in AI will ultimately yield returns. Microsoft’s financial report shows capital expenditure surged 66% year-over-year to a record $37.5 billion last quarter, while the highly watched Azure cloud business’s growth rate slowed compared to the previous quarter.

Venu Krishna, head of US equity strategy at Barclays, stated:

“Given such massive spending, the market is naturally focused on exactly how these investments will be monetized.”

Matthew Maley, chief market strategist at Miller Tabak + Co., said:

“As it becomes increasingly clear Microsoft is unlikely to generate a strong ROI from its enormous AI investments, its stock price needs to be repriced down to a level that more reasonably reflects its historical valuation.”

Keith Weiss from Morgan Stanley said on the earnings call:

“One of the core issues weighing on investors is that capital expenditure is growing faster than we anticipated, while Azure’s growth may be slightly slower than previously expected.”

CFO Amy Hood responded, saying a considerable portion of the additional cloud capacity was used to support internal teams, advancing products like Copilot. She noted that if all new capacity were devoted to Azure, the corresponding growth rate would be much higher.

She told investors that AI hardware supply is limited, affecting the pace of expansion for Microsoft’s cloud business and constraining Azure’s revenue growth. She said Azure’s growth may further slow this quarter, but demand for cloud computing remains above supply.

Over-reliance on OpenAI

Investors also voiced concerns about Microsoft’s over-reliance on OpenAI. Wednesday’s report showed that of Microsoft’s $625 billion in future cloud contracts, 45% are attributable to OpenAI, developer of ChatGPT.

Manish Kabria, head of US equity strategy at Société Générale, commented:

“The market is closely watching Microsoft’s exposure risk to OpenAI.”

Media previously reported that OpenAI is negotiating a new funding round, aiming to raise nearly $40 billion, with potential investors including Nvidia, Microsoft, and Amazon—three of its largest infrastructure providers. This news further fueled market concerns over “circular financing” in the AI industry.

Still Searching for Optimal Pricing Strategy

Some analysts also noted the relationship between Microsoft and OpenAI has recently cooled. Microsoft has now invested in Anthropic and is attempting to integrate its capabilities into Microsoft products. Meanwhile, OpenAI, hungry for compute power, has turned to Oracle, Google, and Amazon. Analysts say this “multi-track AI relationship” means Microsoft is no longer putting all its eggs in one basket, but also highlights that its first-mover advantage is fading.

Microsoft is advancing its Copilot AI chatbot for broader adoption, but the product still lags behind leading rivals like Google and OpenAI. Microsoft previously relied mainly on OpenAI models to support various Copilot tools, but recently began diversifying by introducing Anthropic models into programming tools and Microsoft 365 suite.

In November last year, Microsoft said it would invest up to $5 billion in Anthropic, while the startup pledged to spend $30 billion buying Azure cloud services from Microsoft.

Stifel’s Ribbeck commented:

“It’s not just Microsoft—every company is trying to figure out the best way to price new AI features.”

By contrast, Meta’s share price surged 9.5% after posting earnings surpassing expectations, highlighting intensifying divergence among Silicon Valley tech giants.

Krishna noted correlations among big tech stocks are “near historic lows.” He added:

“We’ve entered a new phase of the AI narrative, with the market shifting from a ‘rising tide lifts all boats’ mentality to a stage where there will be both winners and losers as people judge which business model is superior.”

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