Microsoft Shares Dive Amid Wall Street Scrutiny on AI Investments

Microsoft has experienced a significant decline in its stock price, dropping 12%. This downturn is amidst a broader sell-off in the software industry, raising concerns about the viability of its substantial investments in artificial intelligence (AI).

Stock Market Impact

As of Thursday, Microsoft’s stock is poised to record its worst performance since March 2020. The tech giant, based in Redmond, Washington, has seen its market valuation decrease by approximately $400 billion.

Cloud Computing Challenges

• Microsoft’s cloud computing service, Azure, reported a slowdown in growth during its recent earnings announcement.
• Capital expenditures surged by 66% year-over-year, reaching a record $37.5 billion in the most recent quarter.

The company anticipates steady growth for Azure between 37% and 38% for the January to March period, despite a recent slowdown attributed to AI chip capacity constraints.

Analyst Insights

Dan Ives, a Wedbush Securities analyst, noted that Wall Street expected a reduction in capital expenditures and quicker monetization of cloud and AI services. He emphasized the importance of focusing on data center expansion as customer interest in AI grows.

Concerns Surrounding OpenAI

Pressure on Microsoft intensified following reports that OpenAI, a key asset in its portfolio, constitutes 45% of its cloud backlog. Investment risks are heightened, with around $280 billion potentially at stake as OpenAI struggles to maintain its competitive edge.

Microsoft is reportedly considering a $10 billion investment in OpenAI, which is grappling with nearly $100 billion in debt. Analyst Sebastian Mallaby forecasts that OpenAI could deplete its financial resources within 18 months.

Market Reactions

• John Praveen, an investment director, expressed concerns that AI investments could detract from the performance of traditional software companies.
• The launch of Google’s Gemini 3 prompted OpenAI to initiate an internal “code red,” highlighting the competitive pressures in the AI sector.

Zavier Wong, an analyst at eToro, pointed out that while Microsoft benefits from its close ties to OpenAI, this relationship also brings concentrated investment risk.

Broader Industry Implications

Other tech giants, such as Nvidia and Amazon, are also exploring further investments in OpenAI. Following these developments, both companies experienced stock declines, with Amazon falling by 1.3% and Nvidia down 0.1%.

As scrutiny over AI investments continues, Microsoft faces a pivotal moment in its future strategy and market position.