Msft stock slides as Nadella's AI bet threatens core businesses
Msft stock has fallen more than 24% over the past year, performing worse than most Magnificent 7 peers, as Satya Nadella's all-in AI strategy sparks doubt that record spending will protect Microsoft 365, GitHub, and Azure rather than hollow them out. Fiscal fourth-quarter results due Wednesday will show whether demand and backlog still justify the buildout.
Key Takeaways
- Msft stock is down over 24% from a year ago as investors second-guess Microsoft's AI returns.
- Microsoft plans roughly $190 billion in 2026 capital spending, with a record $40 billion-plus expected this quarter.
- AI is pressuring Microsoft 365, GitHub, and Azure even as AI revenue hits a $37 billion run rate.
- A $627 billion contracted backlog is why some bulls say the market may not punish capex on July 29.
- Cloud gross margins have slipped toward about 64% as AI infrastructure costs bite.
Why is msft stock under pressure right now?
Three years after Nadella put Microsoft at the front of the AI race with OpenAI and AI-powered Bing, the narrative has flipped. According to Business Insider, Copilot still lags tools like ChatGPT and Claude, while Xbox is "not healthy" and LinkedIn faces criticism over AI-generated content.
Investors will get a report card Wednesday when Microsoft reports fiscal fourth-quarter 2026 results. GeekWire notes the stock is near a one-year low even though the company has consistently topped earnings expectations, signaling Wall Street is focused on spending, margins, and competitive risk, not just beats.
How is AI threatening Microsoft's biggest businesses?
Gartner has warned AI could shake up the $58 billion productivity-suite market that long favored Microsoft 365. Workers are starting to draft, analyze, and present inside AI tools instead of Word, Excel, and PowerPoint. Executives still cite Microsoft 365 growth and rising Copilot usage, including more than 20 million paid Microsoft 365 Copilot seats, about 4.4% of 450 million commercial seats.
GitHub grew to a "best month ever" by one internal measure, but faces Cursor and Anthropic's Claude Code. Azure remains the fastest-growing strategic business, yet scarce GPUs are routed first to first-party AI products, then to Azure customers. CFO Amy Hood said Azure growth would have topped 40% instead of 39% if early-year GPUs had gone to cloud customers. Microsoft is also "shopping for capacity everywhere," including evaluating Amazon and Google.
Will Wednesday's earnings calm msft stock worries?
Analysts expect about $87.7 billion in revenue and $4.24 per share. Capex is guided above $40 billion for the quarter and roughly $190 billion for the calendar year. Microsoft Cloud gross margin has fallen from 72% three years ago to 66% last quarter, with about 64% expected this time.
A Yahoo Finance analysis argues punishment is less likely because commercial remaining performance obligations hit $627 billion, nearly double year over year, so the buildout looks more like factory expansion for pre-ordered demand. AI business revenue reached a $37 billion annual run rate, up 123%. Still, Moody's has flagged unclear ultimate returns across big AI platforms. For more explainers across our coverage, browse the Longevity & Biohacking hub.