Is Microsoft's AI North Star also a noose for Nadella?
Microsoft stock is down more than 24% from a year ago as investors question whether CEO Satya Nadella's multibillion-dollar AI bet will pay off. Copilot lags rivals, Azure capacity is tight, and core businesses face disruption — with fiscal fourth-quarter earnings due July 29.
Key Takeaways
- Microsoft shares have fallen over 24% in 12 months, lagging the Magnificent 7.
- The company plans a record $190 billion in 2026 capital spending largely for AI infrastructure.
- Microsoft 365, GitHub, and Azure sit at the center of the AI trade-off debate.
- July 29 earnings will test whether Azure growth and Copilot adoption reassure investors.
Why has Microsoft stock fallen so hard?
Three years after Satya Nadella put Microsoft at the front of the AI race, the market's mood has flipped. According to Business Insider, the stock is down more than 24% from 12 months ago — worse than the rest of the Magnificent 7.
Investors doubt that multibillion-dollar AI spending will deliver. Copilot, Microsoft's flagship AI product, trails tools like ChatGPT and Claude. Xbox's business is "not healthy," its CEO said, amid layoffs and restructuring after the $69 billion Activision Blizzard deal. For more market context, see our Net Worth & Wealth coverage.
Is Microsoft's AI North Star becoming a noose?
Microsoft is spending a record $190 billion this year to build AI infrastructure. As generative AI reshapes work and coding, three core businesses are in focus: Microsoft 365, GitHub, and Azure.
Gartner analysts have predicted AI could threaten traditional productivity suites like Microsoft 365 in a $58 billion market shakeup. Executives still point to Microsoft 365 growth and rising Copilot usage. Motley Fool reporting notes Copilot had about 20 million paid enterprise seats versus more than 450 million Microsoft 365 subscribers.
GitHub recently had its "best month ever," an executive told staff, but faces AI-native rivals such as Cursor and Anthropic's Claude Code. AI demand has also strained GitHub, with dozens of major outages this year.
Azure remains the fastest-growing strategic business, yet demand has outpaced capacity. CFO Amy Hood said scarce computing is prioritized for first-party AI products, with the remainder for Azure. She noted that if first-half GPUs had gone to Azure instead, growth would have exceeded 40% rather than 39%. After that outlook, the stock fell more than 10%.
What could July 29 earnings mean for Microsoft?
Microsoft reports fiscal fourth-quarter results on Wednesday, July 29. One Motley Fool analysis notes the stock has lost nearly a fifth of its value in 2026, while another cites an AI annual revenue run rate above $37 billion, up 123% year over year, and cloud revenue growth near 40%.
Morgan Stanley analyst Adam Wood expects Azure growth to accelerate and Copilot adoption to improve, with a bull-case price target of $795. Risks remain if capital-expenditure guidance rises further, Azure disappoints, or Copilot and Microsoft 365 trends fail to impress.
Inside the company, Nadella has elevated Judson Althoff to commercial CEO, remade leadership ranks, and overhauled performance reviews into sharper categories that some compare to old-era stack ranking. The near-term test is whether Microsoft can prove AI is expanding — not eroding — the businesses that built its wealth.