Microsoft Tumbles 12% as AI Investment Doubts Mount

$400 billion vanished in a single trading day. That's how much market value Microsoft lost as its stock plummeted 12% – the worst performance since the March 2020 pandemic crash.

The selloff wasn't just about one company's quarterly results. It struck at the heart of Silicon Valley's biggest bet: that massive AI investments will eventually pay off.

The AI Spending Spree Hits Reality

Microsoft's second-quarter earnings revealed the scale of its AI ambitions – and the market's growing skepticism. Capital expenditures surged 66% year-over-year to a record $37.5 billion in just three months. That's more than many countries' entire annual budgets.

But where are the returns? Azure cloud growth, the company's crown jewel, showed signs of deceleration. Management projected 37-38% growth for the January-March quarter – essentially flat from recent performance. The culprit? AI chip capacity constraints that are choking the very infrastructure meant to drive profits.

"Wall Street wanted to see less cap-ex spending and faster cloud/AI monetization, and coming out of the gates, it's the opposite," noted Wedbush Securities analyst Dan Ives. The message was clear: investors are losing patience with the "build it and they will come" approach.

The OpenAI Gamble

Perhaps more concerning was the revelation that OpenAI – Microsoft's prized AI partner – accounts for 45% of its cloud backlog. That puts roughly $280 billion at risk, tied to a startup that's still burning cash and accumulating debt.

OpenAI carries nearly $100 billion in debt, yet Microsoft is reportedly preparing another $10 billion investment, according to The Information. It's a high-stakes poker game where the house – in this case, the AI revolution – may not be as sure a bet as once thought.

The competitive landscape isn't helping. Google'sGemini 3 launch prompted an internal "code red" at OpenAI in December. Meanwhile, Anthropic'sClaude Code is gaining ground in AI programming, hitting an annualized run rate exceeding $1 billion.

Contagion Across Tech

The Microsoft selloff sent ripples through the broader tech ecosystem. Amazon and Nvidia, both reportedly investing further in OpenAI, saw their shares decline 1.3% and 0.1% respectively during midday trading.

"Microsoft's deep ties to OpenAI underpin its leadership in enterprise AI, but they also introduce concentration risk," observed eToro market analyst Zavier Wong. It's the classic innovator's dilemma: the very partnerships that drive growth can become sources of vulnerability.

Council on Foreign Relations senior fellow Sebastian Mallaby recently predicted that OpenAI could run out of money within 18 months – a timeline that would test even Microsoft's deep pockets.