It finally happened. After nearly two years of riding the artificial intelligence hype train to record highs, Microsoft’s stock price has hit a major speed bump. As of mid-January 2026, MSFT shares are down roughly 10% over the last three months.
That’s a lot of market cap to just... disappear.
If you’re looking at your portfolio and wondering what went wrong with the "safest bet in tech," you aren't alone. Honestly, it’s a weird situation. The company is literally printing money, yet the stock is acting like it’s in trouble. The truth is, the market has moved past the "wow" phase of AI and into the "where’s the money?" phase.
The $121 billion elephant in the room
The biggest reason why is microsoft stock down right now comes down to one terrifyingly large number: $121 billion. That is the estimated capital expenditure (CapEx) Microsoft is projected to shell out in 2026.
Most of that cash is going into massive data centers and piles of expensive Nvidia GPUs.
Investors are starting to get a little twitchy about this level of spending. It’s one thing to talk about "changing the world with AI," but it’s another thing to spend a hundred billion dollars a year doing it. CFO Amy Hood has been very clear that this spending is necessary to meet demand, but the "AI payback period" is taking longer than Wall Street's short-term memory can handle.
Basically, the market is having a massive "show-me" moment.
Margins are getting squeezed. When you spend that much on hardware, your free cash flow takes a hit. Even though Azure grew at a staggering 40% last quarter, investors saw a slight dip in cloud margins due to all that infrastructure cost. They didn't like it. They sold.
The rotation and the "Sell the News" trap
Sometimes, being too good is actually a problem for a stock. Microsoft reported stellar Q1 2026 results back in October—we’re talking $77.7 billion in revenue. Most companies would kill for those numbers.
But the stock dropped almost 3% the very next day.
Why? Because the expectations were so high that even a "great" report felt like a letdown. This is the classic "sell the news" phenomenon. When everyone already expects you to win, there’s no one left to buy the stock after the good news actually breaks.
We are also seeing a massive rotation. Institutional investors—the big whales—are moving money out of "Mega-Cap Tech" like Microsoft and into smaller software players or even boring value stocks. They’re worried that Microsoft is "over-owned."
Regulatory headaches and the Brazil situation
It’s not just about the money, though. It’s also about the lawyers.
Right now, Microsoft is dealing with an antitrust investigation in Brazil. The regulator there, Cade, is sniffing around their software licensing and cloud practices. It might seem like a small thing, but it adds to a growing pile of regulatory "noise" in the US and EU.
Every time a headline pops up about an antitrust probe, a few more investors decide it’s easier to just park their money elsewhere.
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Is the AI bubble actually bursting?
People keep asking if this is 1999 all over again.
It’s probably not. Unlike the dot-com bubble, Microsoft actually has real products and real profits. Their Copilot ecosystem just hit 150 million monthly active users. That’s a 50% jump in just a few months. Fortune 500 companies like PwC and Lloyds Banking Group are actually using this stuff to save time.
The problem is the valuation. At one point, Microsoft was trading at 37 times earnings. That is expensive.
When a stock is priced for perfection, even a tiny bit of uncertainty—like a delay in a new AI model or a slightly lower-than-expected guidance—can cause a sell-off. Currently, the stock has "compressed" down to a more reasonable 23 to 33 times earnings, depending on which analyst you ask.
What happens next: The January 28 earnings call
Everything hinges on Wednesday, January 28, 2026.
That is when Microsoft drops its Q2 fiscal results. The market is looking for an EPS of $3.86 and revenue of roughly $80.16 billion. If they miss even slightly, things could get ugly. If they beat and show that AI revenue is actually accelerating enough to cover that $121 billion CapEx bill, the stock could rebound instantly.
Morgan Stanley analyst Keith Weiss recently called the stock "well underpriced" at these levels. He thinks the market is ignoring how much market share Microsoft is actually grabbing in the AI space.
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Actionable insights for your portfolio
If you’re holding MSFT or thinking about buying the dip, keep these things in mind:
- Watch the CapEx: If the spending continues to climb without a matching jump in Azure revenue, the stock will stay under pressure.
- The 260-day moving average: Technical analysts are watching the $459 to $470 level. Historically, when Microsoft hits this trendline, it tends to bounce back within a month.
- Don't ignore the competition: Alphabet just hit a $4 trillion market cap thanks to their Apple partnership. Microsoft isn't the only AI game in town anymore.
- Think long-term: The "AI valuation reset" is painful, but the fundamentals haven't actually broken. The company still has $102 billion in cash sitting in the bank.
This isn't a "crash"—it's a correction. The market is finally forcing Microsoft to prove that its massive AI bets are going to pay off in hard cash, not just cool demos.
Next Steps for Investors
To get a clearer picture of whether this dip is a buying opportunity or a warning sign, you should monitor the Azure growth rate vs. Cloud Margin in the upcoming January 28 earnings report. If growth stays above 35% while margins stabilize, the "down" trend is likely temporary. Additionally, keep an eye on the 10-year Treasury yield; as interest rates fluctuate in early 2026, high-multiple tech stocks like Microsoft will continue to be the most sensitive to those shifts.