Microsoft Corp. shares plunged nearly 10% on Thursday, erasing about $360 billion in market value in a single day—the company’s steepest drop since 2020—despite quarterly results that surpassed Wall Street estimates on revenue and earnings. The sell-off, which persisted into premarket trading Friday, stemmed from investor dismay over decelerating growth in the Azure cloud platform and surging capital expenditures tied to artificial intelligence infrastructure.

Revenue for the fiscal second quarter climbed 17% to $81.27 billion, topping the $80.27 billion consensus forecast, while adjusted earnings per share hit $4.14, exceeding expectations of $3.97, according to data from LSEG and StreetAccount cited across multiple reports. Yet, the market fixated on Azure and other cloud services revenue growth slipping to 39% from 40% in the prior quarter, narrowly missing StreetAccount’s 39.4% consensus.

The Intelligent Cloud segment, home to Azure, generated $32.91 billion, up 29% and ahead of the $32.40 billion estimate. Still, finance chief Amy Hood acknowledged capacity constraints from AI chip allocations, stating on the earnings call, “If I had taken the graphics processing units that just came online in the first quarter and second quarter, and allocated them all to Azure, the KPI (growth) would have been over 40%.”

Capex Surge Fuels Margin Fears

Microsoft’s capital spending ballooned to a $37.5 billion quarterly run rate, up 66% year-over-year, with roughly half funneled into GPUs and CPUs for data centers. Gross margins narrowed to just over 68%, the tightest in three years, raising red flags about returns on the AI buildout. “One of the core issues that is weighing on investors is capex is growing faster than we expected, and maybe Azure is growing a little bit slower than we expected,” said Keith Weiss, head of U.S. software research at Morgan Stanley, as quoted by Fortune .

Guidance for the fiscal third quarter projected Azure growth of 37% to 38% in constant currency, aligning with but not exceeding analyst hopes amid ongoing supply hurdles. The More Personal Computing segment forecast came in at $12.6 billion, below the $13.7 billion StreetAccount estimate, further stoking concerns.

Demand backlog doubled to $625 billion, boosted by OpenAI’s $250 billion commitment in Azure services following last year’s recapitalization—Microsoft holds a 27% stake. Excluding OpenAI, backlog grew a more modest 28% to 55% of the total, or about $350 billion, per CFO Hood.

AI Hype Meets Harsh Scrutiny

Investors punished Microsoft for falling short of the lofty AI-fueled growth bar set by peers. Meta Platforms shares jumped 8% the same day despite massive AI outlays, highlighting divergent reactions. “Investors are willing to overlook soaring spending on artificial intelligence if it fuels strong growth, but are quick to punish companies that fall short,” Reuters reported.

Azure’s deceleration over three quarters, coupled with OpenAI dependency—45% of backlog tied to its payments—amplified worries. Barclays analyst Raimo Lenschow noted in a post-earnings missive that investors zeroed in on Azure as the key AI health indicator, as covered by CNBC .

Microsoft returned $12.7 billion to shareholders via dividends and buybacks, up 32% year-over-year, per the company’s investor relations site. Yet trading volume surged to 126.5 million shares, 366% above the three-month average, signaling broad capitulation.

Analyst Views: Buy the Dip?

Wall Street remained largely bullish. Shares traded at 26 times forward earnings post-drop, down from higher multiples. “Now trading at 26 times forward earnings, I’d argue this sell-off is a bit extreme given the company’s persistent sales growth and even stronger EPS growth,” wrote an analyst in a Yahoo Finance piece. Wedbush’s Dan Ives called 2026 an “inflection year for AI and MSFT,” per Al Jazeera .

Forbes highlighted Azure’s trajectory and OpenAI risks, questioning if capex would yield revenue gains or merely fund losses. Morgan Stanley noted Azure beat internal guidance but lagged Street hopes, as detailed in Investopedia .

Microsoft 365 Copilot reached 15 million paid subscriptions, underscoring AI traction in productivity tools. CEO Satya Nadella emphasized the multi-year AI journey during the call, amid competition from Google’s Gemini and Anthropic’s Claude.

Broader Tech Ripples

The plunge rippled through software peers, with ServiceNow dropping 10% on AI disruption fears despite beats. The event marked a shift from AI FOMO to demands for proof, evoking dot-com parallels, as FinancialContent observed: “The January 2026 market reaction suggests that the narrative is shifting toward the ‘Death of Software’ theory.”

BNN Bloomberg’s Rishi Jaluria viewed the reaction as short-term noise: “If you had told me that Microsoft would be trading at about 22 times GAAP earnings… and put up a quarter like this, I would have thought the stock would be up.” BNN Bloomberg captured the divide between quarterly metrics and long-term potential.

Pre-market indications showed no rebound, with shares at $433.50 Thursday close. The episode underscores hyperscalers’ high stakes: massive AI bets demand flawless execution as capacity catches demand.