Microsoft’s AI Spending Spree Sends Investors Fleeing

Despite posting impressive quarterly results that would typically trigger a rally, Microsoft shares have entered a prolonged downturn. The technology behemoth has recorded seven consecutive days of losses, erasing more than $350 billion in market valuation. This divergence between strong fundamentals and weak share performance has left market participants questioning whether current AI-driven spending concerns present a buying opportunity or signal deeper troubles.

Robust Cloud Performance Fails to Impress

Microsoft’s first-quarter results for fiscal year 2026 would normally have sparked investor enthusiasm. Revenue surged by 18.4% to reach $77.7 billion, with the cloud division particularly standing out. That segment expanded by 40%, comfortably surpassing the 38% growth analysts had projected. The Azure cloud platform demonstrated even stronger momentum, recording a 39% increase when measured in constant currency.

Instead of celebrating these results, shareholders headed for the exits. The stock suffered its longest losing streak since September 2022, declining 8.3% over seven trading sessions. Trading volume spiked to over 27 million shares, indicating significant market anxiety despite the positive earnings report.

Capital Expenditures Fuel Investor Anxiety

The root of this investor unease lies in Microsoft’s ballooning capital expenditures. Approximately half of these investments are directed toward graphics and processing chips specifically for artificial intelligence applications. Chief Financial Officer Amy Hood confirmed that this accelerated spending pace will continue throughout the current fiscal year.

Market experts have voiced concerns about this financial trajectory. Evercore analyst Kirk Materne openly described the situation as creating “headwinds” for the stock. Investors are increasingly questioning when these multibillion-dollar investments will generate returns. With clear answers remaining elusive, many are shifting their allocations away from what they perceive as a lagging mega-cap stock toward smaller, momentum-driven AI companies, according to observations from Mizuho analyst Jordan Klein.

Should investors sell immediately? Or is it worth buying Microsoft?

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Valuation Concerns Mount Amid Technical Weakness

Microsoft’s current valuation metrics have come under increased scrutiny. The stock trades at 32.58 times projected earnings and 13.57 times sales, positioning it well above industry averages. From a technical perspective, the equity has breached crucial support levels and now contends with a persistent downward trend.

Despite these challenges, research firms maintain constructive outlooks. Daiwa Capital Markets established a $630 price target while recommending aggressive purchasing during price declines. Their investment thesis suggests Microsoft’s substantial AI investments will ultimately deliver medium-term benefits and secure competitive advantages. Whether investors will maintain the patience required for this strategy to unfold remains uncertain.