Microsoft is heading for its worst month in years, caught between two opposing fears about artificial intelligence. The stock fell more than 20% at one point in June, which would have been its steepest monthly drop since December 2000, before a two-day rebound trimmed the loss. It is now on track for its worst month since the 2008 financial crisis.
Shares rose as much as 1.8% on Monday. The selloff has erased more than $530 billion in market value, according to Bloomberg’s latest report, with other reports putting the figure near $570 billion, and pushed the stock to its lowest close since 2023 on Thursday before it recovered.
The anxiety runs in two directions. As Cresset Wealth Advisors strategist Jack Ablin put it, Microsoft is being hit on both AI spending and AI disruption. On one side, investors worry the company’s enormous outlays on data centers and chips will not generate returns fast enough. On the other, they fear AI could eventually erode demand for traditional software like Word and Excel.
Both concerns intensified after Microsoft’s fiscal third-quarter results in late April showed softer-than-expected growth in its Azure cloud business, paired with guidance for roughly $190 billion in capital spending through December, more than Wall Street anticipated. Stifel analyst Brad Reback cut his price target to $400 from $415 on June 25, citing Azure margins compressed by accelerating capital expenditure.
The damage has left Microsoft unusually cheap. At about 19 times estimated earnings over the next year, the stock trades at a rare discount to the S&P 500’s 20 times and well below its own 10-year average of 27.
That valuation has drawn a notable contrarian. Michael Burry, the investor known for shorting the housing market before 2008, disclosed in a Substack post that he bought Microsoft call options struck in the low $700s and expiring in 2028, a long-dated bullish wager. The disclosure helped send shares up 5.7% on Friday to $372.97, their best day since May 2025. Burry has framed the broader software selloff as technical pressure rather than broken fundamentals.
Bull Case, Bear Case
The debate comes down to timing. Bulls point to revenue, which analysts expect to grow 17% in the fiscal year ending June 30, the fastest pace since 2022, with acceleration projected toward 20% by 2029, plus a contracted backlog that has roughly doubled from a year earlier.
Bears counter that the spending is the problem: capital expenditure is climbing faster than the revenue it is meant to produce, squeezing free cash flow and the multiple investors will pay. Portfolio manager Keith Fitz-Gerald captured the tension, calling the price close to “an epic buying opportunity” while admitting he is keeping his position small because he cannot yet rule out that AI reshapes how companies use the Microsoft suite.
A Wider Reckoning
Microsoft’s slump is not really about Microsoft. Every major technology company pouring money into AI faces the same gap between present spending and uncertain future payoff. Amazon, Microsoft, Meta and Google together plan to spend roughly $650 billion on AI infrastructure in 2026, about 60% more than the prior year, and Meta and Alphabet have drawn similar scrutiny.
Capital has lately rotated toward parts of the AI trade with clearer near-term returns, such as memory and chip makers, while the SpaceX selloff and broader market volatility have added pressure. The episode marks a shift in how markets treat AI: exposure alone is no longer rewarded, and investors now want proof that spending can become earnings without wrecking margins. Microsoft’s late-July earnings will be the next real test.
