Microsoft’s Cloud Growth Faces a Double Threat: A £2.1 Billion Lawsuit and OpenAI’s Spending Pivot

Microsoft enters a pivotal week with its fiscal third-quarter earnings report on Wednesday, but the software giant is navigating a minefield that extends well beyond its Azure growth rate. A London court has just certified a £2.1 billion class-action lawsuit, while a massive $625 billion backlog—nearly half of it tied to OpenAI—faces an uncomfortable recalibration.

The Legal Storm in London

The Competition Appeal Tribunal in London ruled on Tuesday that Dr. Maria Luisa Stasi can proceed with a collective action representing nearly 60,000 businesses. The claim accuses Microsoft of unfairly inflating wholesale prices for Windows Server licenses when customers run them on competing cloud platforms, effectively making Azure cheaper than Amazon Web Services or Google Cloud.

Microsoft has vowed to appeal the decision, but the lawsuit adds to a growing regulatory cloud. Competition authorities in both Europe and the US are already scrutinizing the company’s cloud practices. The timing could hardly be worse: the case arrives just as investors are bracing for a make-or-break earnings print.

The $625 Billion Backlog and OpenAI’s Spending Reset

Perhaps more immediate for the share price is the tension building inside Microsoft’s own order book. The company reported a staggering $625 billion backlog, representing customer commitments for future cloud services. But 45% of those orders come from a single client: OpenAI.

The AI startup dramatically slashed its long-term spending plans in February. Instead of the previously projected $1.4 trillion in investment through 2030, OpenAI now plans to spend just $600 billion. That means Microsoft will almost certainly have to adjust its backlog downward when it reports earnings—a move that could spook a market already on edge.

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

The Azure Growth Benchmark

Analysts are laser-focused on Azure’s growth rate, the single most important metric for the stock. In the second quarter, Azure expanded 39%, but the shares plunged nearly 10% the next day as investors punished the slight deceleration. For the current quarter, management has guided for constant-currency growth of 37% to 38%.

The consensus estimate calls for adjusted earnings of $4.04 per share, a roughly 17% year-over-year gain. Revenue is expected to come in at around $81 billion. But Morgan Stanley’s analysts are demanding more: they want Azure growth of 39%, a full percentage point above the top end of Microsoft’s own forecast, to justify the stock’s valuation. The bank maintains an “Overweight” rating with a $650 price target.

A Sector-Wide Jolt

The stakes were raised last Thursday when ServiceNow, a cloud software peer, missed Wall Street’s margin targets. Its shares cratered 18%, dragging the entire software sector lower. The selloff reflects growing anxiety that new AI applications are eroding pricing power in the cloud business—a fear that could amplify any disappointment from Microsoft.

Technicals and Analyst Sentiment

The stock closed the week at €357.35, leaving it down roughly 11% year-to-date. The relative strength index sits at 28.1, technically in oversold territory, and the shares are trading well below their 200-day moving average. Despite the recent turbulence, 41 of the 49 analysts covering Microsoft recommend it as a strong buy. Morningstar pegs the fair value at $600 per share, while Bank of America rates it a “Buy” with a $500 target.

What Wednesday Will Decide

When Microsoft opens its books after the US market close on April 29, the market will be watching for two things: whether Azure growth hits at least 37%, and how the company handles the OpenAI-related backlog adjustment. A miss on either front could trigger another sharp selloff, temporarily pushing the London lawsuit into the background. But for a stock that has already shed 11% this year, the margin for error is razor-thin.