I didn’t see this Microsoft (NASDAQ: MSFT) stock sell-off coming, at least not the nearly 30% share price drop in the last six months.
Like many investors, I spent the better part of 2024 and early 2025 believing Microsoft stock was essentially untouchable. I didn’t buy any while it ran up more than 80% during that time, and thought I had missed the bus. The company took a stake in OpenAI, was embedding Copilot across its entire product suite, and was generating cash flows that most businesses only dream about. The Azure cloud business was growing. Then 2026 hit, and the stock plunged in the first quarter, marking its steepest drop since the 2008 financial crisis.
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I, along with the rest of the market, underestimated how much of Microsoft’s valuation was built on a story rather than a timeline. Subjectively, it seems like investors were pricing in frictionless, high-margin artificial intelligence (AI) growth. What they got instead was the reality of a capital expenditure arms race.
Microsoft is expected to spend $146 billion on AI infrastructure in fiscal 2026. Quarterly capital expenditures nearly doubled year over year to $29.9 billion. And the company’s OpenAI investment losses reached $3.1 billion in a single quarter, up from $523 million a year earlier.
Microsoft still beat earnings estimates. It didn’t matter. The market wasn’t grading the company on what it delivered last quarter; it was reassessing whether the math on AI investment would ever yield the margins investors were expecting. That’s a very different question, and the market didn’t take it seriously enough.
After the sell-off, Microsoft isn’t being priced for perfection anymore. The multiple has compressed meaningfully, sentiment has cooled, and expectations around AI have shifted from hype to scrutiny. That’s exactly the kind of reset long-term investors should pay attention to.
At the same time, the “Great Rotation” is real. Capital has been flowing out of mega-cap tech and into more cyclical, asset-heavy sectors like industrials, energy, and materials, as investors prioritize near-term cash flows and tangible demand over long-duration growth narratives.
But the underlying business for Microsoft didn’t break. Azure is still growing, enterprise demand hasn’t disappeared, and Microsoft remains deeply embedded across global IT infrastructure. I do not see that changing. What changed is the market’s willingness to give it the benefit of the doubt up front.