Catenaa, Friday, March 27, 2026- Microsoft stock is on track for its worst quarterly performance since the global financial crisis two decades ago, amid AI spending and software selloffs.
First, the software giant is doubling down on capital expenditures as Wall Street increasingly asks when investments in artificial intelligence infrastructure will produce more dramatic payoffs in revenue growth.
Second, investors are selling software stocks amid fears that AI startups like Anthropic and OpenAI are developing agents that could replace products from companies like Microsoft.
The company’s stock is down 25% in the first quarter, on pace for its biggest loss since its 27% drop in the fourth quarter of 2008.
It’s by far the weakest performer among the Magnificent Seven tech giants to start the year, with an index tracking the group falling 14% over that time.
Microsoft fell 1.7% after the market opened on Friday, putting it on track for a fourth straight session in the red.
The selloff has the stock looking relatively cheap, trading at less than 20 times earnings over the next 12 months, the lowest since June 2016.
Microsoft’s multiple is slightly above the S&P 500 Index’s, and it recently traded at a discount to the broad equities benchmark for the first time since 2015.
Although Wall Street remains optimistic that it will emerge as a long-term winner from AI, Microsoft still has to keep up with the hyperscaler spending race, a posture that could complicate any near-term sentiment reversal.
The company’s capital expenditures, including leases, are projected to reach $146 billion in fiscal 2026, which closes at the end of June.
That’s up about 66% from $88 billion in fiscal 2025, and the figure is expected to swell to $170 billion in fiscal 2027 and $191 billion in fiscal 2028, according to the average of estimates compiled by Bloomberg.
Investors are increasingly taking a jaundiced view of that kind of spending, especially without a more pronounced acceleration in growth.
In its most recent quarterly results, Microsoft’s closely watched Azure cloud-computing division posted a slight deceleration in growth from the prior quarter.
Meanwhile, Microsoft’s Copilot AI offering has gotten limited traction from users, leading it to shake up its AI operations to improve the service.
Of the 67 analysts tracked by Bloomberg who are covering Microsoft, 63 have buy ratings, while three have holds, and one rates it a sell.
The average 12-month price target on the stock of $592 projects more than 64% upside over the next year.
That’s the highest implied return on record, according to data compiled by Bloomberg that goes back to 2009. The stock is also trading under its 200-day moving average by the widest margin since 2009.
The long-term outlook is hopeful, but there are very real execution risks between now and then. Whether those concerns are prescient or represent a buying opportunity is in the eye of the beholder.
