MSFT Stock Posts Worst Day In 6 Years, Drags Broader Market

The Windows maker erased about $350 billion from its market capitalization.

• Investors returned unimpressed with Microsoft Azure’s performance.
• At least 15 analysts lowered their price targets on MSFT, although they still overwhelmingly recommend buying the shares.
• Investors would benchmark the cloud performance of Amazon and Alphabet, which report next week, against Azure’s.

Microsoft Corp.’s shares slid 10% on Thursday – their steepest drop in nearly six years and erasing about $350 billion in market value – after the company’s cloud performance and hefty capital spending plans unsettled investors, prompting a wave of analyst price-target cuts.

Its Azure division grew 39% in the December quarter. Although it was higher than the analysts’ 38.8% growth estimate (Visible Alpha), the pace was a notch lower than the 40% growth in the just preceding quarter.

For hyperscalers like Microsoft, their cloud performance is critical, acting as a key barometer of returns on massive AI investments and often dictating the stock’s direction. The outsized share reaction to Azure's sequential growth slipping by just a single percentage point underscores how elevated investor expectations have become.

That comes amid record capital spending, mainly in AI. Microsoft reported a record $37.5 billion in capital expenditures in its fiscal second quarter and said the figure could rise over time, partly due to the rising cost of memory chips.

Microsoft’s stock drop weighed on the broader market on Thursday, with the Nasdaq ending 0.5% lower and the S&P 500 0.1% lower.

Analysts’ Reaction

Azure’s constant currency growth was a disappointment relative to expectations, and next quarter's guide was even less inspiring, KeyBanc analyst Jackson Ader said in an investor note.

Bernstein said Microsoft stated that Azure could have grown by over 40%, but it is constrained by capacity and is prioritizing first-party apps and R&D over near-term Azure growth. Notably, Microsoft’s contracted backlog in its cloud business more than doubled to $625 billion, and about 45% of the company’s remaining performance obligation was driven by OpenAI alone.

At least 15 brokerages, including Goldman Sachs, Wedbush, and JPMorgan, cut their MSFT targets following the company’s Wednesday report, according to The Fly. Morgan Stanley dropped Microsoft from its Top Pick list.

Still, they overwhelmingly suggest buying into the stock. All but one of the 58 analysts covering the stock rate it ‘Buy’ or higher, with the lone analyst rating it ‘Hold,’ according to Koyfin. Their average price target of $611.7 is more than 40% higher than the stock’s last close.

‘Buy The Dip,’ Say Retail Investors

On Stocktwits, retail sentiment for MSFT climbed multiple points higher in the ‘extremely bullish’ zone as of late Thursday from a day prior, with message volume for the ticker jumping 185% in the past 24 hours.

Members actively debated whether current AI costs outweigh future revenue, with many viewing the dip as an overreaction and a long-term buying opportunity.

“$MSFT bought this dip. Bottom is in,” said a user.

Microsoft’s report would serve as an investor benchmark for quarterly results from its fellow cloud majors, Alphabet and Amazon. They report next week on Wednesday and Thursday, respectively.

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