According to Business Insider, Microsoft’s stock plunged 12% on Thursday, marking its biggest single-day decline since March 2020. This happened even though the company’s earnings beat both top and bottom line forecasts, with its cloud revenue hitting $50 billion for the first time. The negative reaction was driven by weaker-than-expected future guidance and larger-than-expected spending on artificial intelligence. A key concern was Azure cloud platform revenue growth, which came in at 39% annually—above the 38.4% forecast but below the 40% from the previous quarter. UBS analyst Karl Keirstead noted that both Azure and the Microsoft 365 segments fell a bit short of expectations. Furthermore, the company’s remaining commercial obligations skyrocketed 110% to $625 billion, with a whopping 45% of that tied to its partner OpenAI.
The AI Spending Paradox
Here’s the thing that’s really fascinating about this sell-off. Microsoft did what Wall Street has been begging every tech giant to do: it’s going all-in on AI, investing massive capital to build out infrastructure. But the market’s reaction, especially when you compare it to Meta’s stock spike the same day, shows there’s a limit. Investors need to see that the core business is rock-solid to feel good about that surging capex. Meta’s advertising business was so robust it offset its own big spending jump. Microsoft’s Azure, while still growing fast, showed a tiny deceleration. And in this hyper-sensitive environment, that’s all it takes to spook people. It’s a classic “damned if you do, damned if you don’t” scenario. Spend too little, you fall behind. Spend too much without perfect growth elsewhere, you get punished.
The OpenAI Anchor
This is where it gets really interesting. Blake Crawford from Fusion Collective pointed out that 45% of Microsoft’s massive $625 billion in future commercial obligations is tied to OpenAI. Let that sink in. That’s a huge, concentrated bet. The company’s future growth prospects are now inextricably linked to the success of Sam Altman’s crew. So all that spending? A huge chunk of it is essentially a hope-and-a-prayer that OpenAI will continue to deliver groundbreaking models that businesses will pay for. It makes Microsoft’s strategy look less like a diversified software giant and more like a venture fund with one enormous, non-controlling position. That adds a layer of risk that big institutional investors really don’t love.
Is This an AI Bubble?
Erik Gordon, the professor from the University of Michigan, called it: he sees Microsoft’s spending as a clear indication of an AI bubble. And you have to wonder, is he right? When the foundational infrastructure for this new tech is so expensive that it tanks the stock of one of the world’s most valuable companies on a *beat*, it makes you question the economics. The market is basically saying, “Show us the money, and soon.” It’s not enough to have a compelling AI story anymore. You need the tangible, near-term financial results to back up the hype. Microsoft’s challenge now is to prove that all this GPU-powered capacity it’s building—some of which, as Keirstead noted, was even allocated away from Azure to first-party products—will translate into undeniable revenue acceleration next quarter. If Azure growth doesn’t re-accelerate, as Gabelli Funds’ Ryuta Makino warned, the stock could be in for a tough ride. Basically, the free pass on spending is over.
