- Microsoft stock is down by 11% year-to-date, contrasting with tech-heavy Nasdaq Index's 18% gain
- MSFT investors were impressed by its latest quarterly earnings, but a significant increase in AI capex without evidence of corresponding incoming revenue has created doubt
- Some key influential investors have eased their exposure to the stock but some analysts are signaling a significant upside from the current $427 to around $560 in the next 12 months.
Microsoft stock has had a rough run in 2026, sliding more than 10% year-to-date. This contrasts with the broader market, as the Nasdaq Index gained over 18% during the same period. This divergence raises questions for many investors.
This dramatic divergence has left many retail and institutional investors scratching their heads. How can a company that practically commands the enterprise software ecosystem lag so far behind its peers?
What’s Causing Microsoft’s Rough Run?
Microsoft reported fiscal Q3 2026 revenue of $82.9 billion on April 29, 2026, an 18% increase year-over-year, surpassing the $81.4 billion consensus. Earnings per share were $4.27, exceeding the $4.07 estimate. Azure cloud services grew 40%, contributing to a 29% rise in total cloud revenue to $54.5 billion.
Despite these figures, investors have concerns about the company’s heavy capital spending on artificial intelligence infrastructure. They’re uneasy about the significant data center investments, especially since Azure cloud growth hasn’t sped up enough to quickly cover those costs.
In late April 2026, Microsoft and OpenAI restructured their partnership. Microsoft lost its exclusive rights to resell OpenAI’s technology through Azure. The market initially saw this as a strategic setback, raising questions about Microsoft’s competitive edge in generative AI.
Adding to the pressure, TCI Fund Management, a major hedge fund, sold its entire $8 billion Microsoft stake. They cited worries that AI could threaten some of the company’s core businesses. That news added fuel to the stock’s sliding.
Q2 2026 results led to an almost 10% single-day stock drop. Investors focused on Azure growth slowing to 39% from 40% in the previous quarter, and weakness in the More Personal Computing segment, which missed estimates at $14.25 billion.
A concern is that Azure’s growth rate could decelerate further while capital expenditures continue to increase. This scenario could compress both margins and the earnings multiple.
What Could Change the Trajectory?
Despite Microsoft stock’s recent performance, Wall Street analysts generally maintain a constructive view. Based on 46 analysts, Marketbeat reports a consensus rating of Moderate Buy, with an average 12-month price target of approximately $560. This target suggests a notable upside from the current levels around $427.
Wedbush analyst Daniel Ives maintained an Outperform rating and $575 price target on May 13, arguing the restructured OpenAI deal is a net positive. Ives noted that by removing OpenAI’s previous option to defer payments, Microsoft will now get around $6 billion in 2026, an increase from the $4 billion first expected.
Microsoft also retains its 27% stake in OpenAI, valued at approximately $200 billion. The company’s current market capitalization doesn’t seem to account for this significant asset.
Continued monetization of AI through Copilot subscriptions and enterprise adoption remains a significant opportunity. Copilot now has 15 million paid enterprise seats, with new additions up over 160% year-over-year.
Management expects even higher net subscriber growth in Q4 FY2026 compared to the roughly 5 million new seats added in Q3. Once usage-based billing joins seat revenue, the company anticipates a real acceleration in revenue growth.
Also, Azure’s competitive position, supported by strategic partnerships, helps Microsoft in its long-term cloud and AI leadership efforts.
Elevated AI-related capital expenditures and moderated Azure growth expectations have raised investor concerns about near-term returns.
Microsoft lost exclusive OpenAI reseller rights via Azure, but retains a 27% stake and receives more near-term revenue under the new deal.
Consensus points to revenue growth of 15-17% and an average price target near $560, signaling Moderate Buy.
