Author: 🪽, Deep Tide TechFlow

Microsoft's stock price fell approximately 25% in the first quarter, marking the worst single-quarter performance since the 2008 financial crisis, with the largest drop among the "Magnificent Seven." The staggering $146 billion capital expenditure on AI failed to translate into large-scale adoption of Copilot (with only 6 million daily active users, which is 1/73 that of ChatGPT), and disputes over exclusivity agreements with OpenAI further dampened investor confidence. The forward price-to-earnings ratio has compressed to about 20 times, the lowest since 2016, briefly falling below the S&P 500 index level.

Microsoft has just experienced the most brutal quarter since the 2008 global financial crisis.

According to a CNBC report on March 31, Microsoft's stock price has cumulatively fallen about 25% in the first quarter of 2026, dropping from a year-to-date high of $481 to around $356. It closed at approximately $365 on March 31, with a 52-week high of $555.45. This drop significantly exceeded the approximately 7% drop in Nasdaq during the same period, making it the worst-performing stock among the "Magnificent Seven," while NVIDIA only fell about 4.2% during the same period.

According to Bloomberg, Microsoft is at the intersection of two trends causing turmoil in the tech sector: massive capital investment in AI infrastructure has yet to yield corresponding returns on the revenue side, and investors are concerned that AI startups like Anthropic and OpenAI are developing agents that could replace Microsoft products. Janus Henderson Investors fund manager Jonathan Cofsky pointed out that the market fears customers may bypass Microsoft and turn directly to AI suppliers, impacting core business pricing and margins.

Poor Copilot Adoption Rate: 6 Million Daily Active Users vs. 440 Million for ChatGPT

The core issue behind Microsoft’s stock plunge lies in the huge gap between massive AI investment and product adoption.

According to CNBC, citing Sensor Tower data, as of February 2026, Microsoft Copilot had approximately 6 million daily active users. In the same period, OpenAI's ChatGPT had 440 million, Google Gemini had 82 million, and even Anthropic's Claude reached 9 million daily active users in March. Within Microsoft's own business ecosystem, only about 3% (approximately 15 million out of 450 million Microsoft 365 business subscription users) have purchased the Copilot add-on service.

A survey by independent research firm Recon Analytics of over 150,000 paid AI users in the U.S. paints a more alarming picture: Copilot’s market share dropped from 18.8% in July 2025 to 11.5% in January 2026, contracting by 39% in just six months. A key finding was that when employees were limited to using only Copilot, the adoption rate was 68%; after adding the ChatGPT option, it fell to 18%; and with Gemini added, the proportion choosing Copilot was reduced to just 8%.

Microsoft is clearly aware of the severity of the issue. On March 17, CEO Satya Nadella announced a comprehensive restructuring of the Copilot leadership structure: former Snap executive Jacob Andreou was appointed as Executive Vice President of Copilot, overseeing consumer and commercial products; Mustafa Suleyman, who previously managed Copilot, was "released" to focus on developing "superintelligent" models. Nadella defined this adjustment in an internal memorandum as "moving from a series of excellent products to a truly integrated system."

However, whether this structural adjustment can reverse product competitiveness remains unknown. Microsoft also launched a new Microsoft 365 E7 enterprise package on May 1, priced at $99/user/month, a 65% increase over the existing E5 package, marking the first time that Copilot has been directly bundled into the core enterprise offering. This is the company's first new enterprise pricing tier in a decade.

$146 Billion Capital Expenditure: Capacity Expansion Struggles to Keep Up with Investment Pace

Microsoft's spending scale on AI infrastructure has raised concerns in the market.

According to analyst estimates compiled by Bloomberg, Microsoft's capital expenditure (including leases) for the fiscal year 2026 (ending June) is expected to reach $146 billion, a 66% increase from $88 billion in fiscal year 2025. Analysts expect this figure to climb to $170 billion in fiscal year 2027 and further to $191 billion in fiscal year 2028. These investments are mainly aimed at expanding Azure's AI computing power and supporting Copilot's deployment in productivity suites.

However, the latest quarterly financial report showed that Azure's growth rate has slowed for the first time in years. Constraints on data center capacity on the supply side, electricity supply bottlenecks, and equipment delivery cycles have limited Azure's ability to meet demand, a situation that continues into 2026. Investors are increasingly questioning whether such massive capital investments can translate into sustainable revenue growth sufficient to support Microsoft's premium valuation over the past several years.

Data on valuations has already provided the answer. According to Bloomberg data, Microsoft's forward price-to-earnings ratio has compressed to about 20 times, the lowest level since June 2016, briefly dropping below the valuation multiple of the S&P 500 index—this is the first time since 2015. The stock price's deviation from the 200-day moving average is the largest since 2009. Overall, valuations have been reset to pre-ChatGPT explosion levels of the AI boom at the end of 2022.

Deepening Rift with OpenAI: $50 Billion Amazon Deal Sparks Legal Tug-of-War

Another heavy burden for Microsoft comes from the deteriorating relationship with OpenAI.

According to a Financial Times report on March 18, Microsoft is considering legal action against OpenAI and Amazon. The dispute centers around the approximately $50 billion cloud computing agreement struck between Amazon and OpenAI—this deal designates AWS as the "exclusive third-party cloud distribution provider" for OpenAI's corporate platform Frontier. Microsoft believes this violates the exclusivity terms it has with OpenAI regarding Azure.

OpenAI and Amazon argue that Frontier employs a "Stateful Runtime Environment," which does not involve "stateless API calls" that fall under Microsoft's exclusivity coverage, and therefore does not constitute a breach of contract. An insider familiar with Microsoft's position told the Financial Times, "If they breach the contract, we will sue. If Amazon and OpenAI want to gamble on the creativity of their lawyers, I believe our chances of winning are on our side."

This dispute has yet to escalate into formal litigation, and both sides are still negotiating. However, Microsoft has already begun taking hedging measures—the Copilot Cowork feature launched on March 9 now uses Anthropic's Claude model instead of OpenAI products. Microsoft is also accelerating the development of its own MAI series foundational models and expanding the Maia 200 AI accelerator chip and Fairwater data center network to systematically reduce dependency on a single AI supplier.

Wall Street Divergence: "Buy" Ratings Abound, but Consensus is Eroding

Despite the severe decline, Wall Street's ratings for Microsoft remain highly concentrated in the "Buy" range. According to Bloomberg data, among 67 analysts tracking Microsoft, 63 have given a buy rating, 3 hold, and 1 sell. The average 12-month target price is $592, implying an upside potential of over 64%—the highest level recorded by Bloomberg since 2009.

However, cracks have begun to appear beneath the consensus. UBS has lowered Microsoft's target price from $600 to $510, stating that the narrative around Copilot "needs improvement" to drive a reevaluation of its valuation. Melius Research analyst Ben Reitzes warned that the upside for Azure is limited and bluntly stated that Microsoft needs to "fix Copilot." The relatively optimistic side is Bank of America analyst Tal Liani, who has recently resumed coverage of Microsoft and issued a buy rating, citing Microsoft's "durable multi-year growth" in cloud computing and AI.

Allspring Global Investments fund manager Jake Seltz believes Microsoft stock has "high long-term value," asserting that its AI strategy will ultimately be validated, and the current panic instead creates opportunities.

Microsoft's next quarterly financial report is scheduled for release on April 28. In the context of ongoing low Copilot adoption rates, strained relations with OpenAI, and ballooning AI capital expenditure, the core question that Nadella needs to answer remains singular: when will the multi-billion-dollar AI bet show returns?